Question

• The latest current account balance figures show that Turkey has been experiencing a major improvement in its current account balance. What is the major reason for this? Taking current account balance as the difference between savings and investment, support your argument with the relevant data on investment and savings.
• What will be your policy advice to improve domestic savings in the economy? How did successful developing countries improve their savings rate?

Answer 1

1) In 2018, the predictions were all against Turkey and the currency Lira picking up. However, the magic combined with good favors helped to get very little but some surplus for Turkey. It has been documented that the growh was basically due to the fall in prices which helped Turkey in regaining its strength. The fall in oil price led to the fall in prices of imports. The other reason was the government intervention. The government raised interest rates, the banks survived thanks to regulatory forbearance with a relatively high capitalization ratio and the balance of payments improved. When these happened then the savings of the people increases, along with stabilization of Lira. This regained confidence in the economy led to more investment and hence finally the crisis to happen.

2) In order to improve the domestic savings, tax breaks should be given to the industries while monetary expansion would help the household to encourage their saving rates. It can also make certain types of savings tax exempt if it wishes to encourage savings. The saving rates of verious countries improved after the government agreed to spend more. As there was more and more government expenditure, the life standards increased, helping the common household to save more. On the other hand, progressive corporate and wealth taxes encouraged the corporate profits, giving more jobs and employment to household.