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World economies

June 25, 2012


Turkey THE Turkish economy surged 8.5 per cent in 2011, the fastest growing in Europe, in spite of sluggish demand in Turkey’s chief export markets. The major factors behind this robust performance were the continued buoyancy of investment and a positive contribution from net trade in the second half of 2011. The economy, however, grew at a slower pace compared to 9.2 per cent growth in 2010. The per capita GDP in 2011 stood at about 9,897dollars. Turkish Deputy Prime Minister, who also oversees the economy, expects that Turkey’s GDP growth target of five per cent for 2012 looked an attainable goal based on the current outlook, adding that Turkey had left behind the worst period of its current account deficit.

The World Bank has kept its forecast for 2012 economic growth at 2.9 percent. According to the bank, the economic growth rate would be 4 percent in 2013. The International Monetary Fund (IMF) also revised its projection of Turkey’s economic growth this year. It said that the Turkish economy is likely to grow by 2.3 per cent, compared to its own earlier projection of 0.4 per cent. Growth in 2013 was seen at 3.2 percent, while last year’s growth was put at 8.3 per cent. The European Commission increased its growth forecast for the Turkish economy from 3 per cent to 3.3 per cent for this year and from 4.1 per cent to 4.6 per cent for 2013. U.S. investment bank BofA Merrill Lynch anticipates that Turkey will have zero growth in 2012 and six per cent growth in 2013.

The European Bank for Reconstruction and Development (EBRD) announced Turkey’s growth rate in 2012 as 2.5 per cent.

Turkey is not completely exempt from the crisis in the eurozone. The situation in the eurozone has negative effects on Turkey’s exports and imports. The slowdown in growth will be a result of both global and domestic factors. The Turkish economy will grow but on a smaller scale compared to 2011. Inflation figures in Turkey in 2011 were in double digits. Inflation in Turkey in 2012 will continue to be in double digits. The Organization for Economic Cooperation and Development (OECD) projected that Turkey would grow 3.3 per cent in 2012, and 4.6 per cent in 2013.

According to the Turkish Central Bank, the biggest threat to stability of Turkish economy seems to be drowning rapidly, thanks to the measurement taken by the government recently. Long lived problem of the country, current account deficit is on its way down for the fourth consecutive month, totaling to some$21 billion for the first four month of the year. The number was around $28 billion for the same period of the last year. Tourism revenue is however down about 400 million dollars comparing to the last year, totaling to $4 billion. Investments by Turks who live oversees increased too $5 billion.

Turkey’s current-account deficit narrowed for a sixth month in April after the lira’s decline and tighter monetary policy curbed imports. The deficit was $5 billion in the month, down from $7.7 billion a year earlier. The 12-month cumulative deficit narrowed to $69.2 billion, the lowest since May last year. The deficit is on track to decline to around 8 per cent of GDP. For the first quarter of 2012, Turkey’s current account deficit as per cent of GDP would be 8.9 per cent in 2012, and 8.4 per cent in 2013. The World Bank revised its forecast for the current account deficit as a proportion of GDP to 7.8 per cent from 7.6 per cent.

The central bank latest report reveals that Turkey’s fiscal consolidation in the past decade has been an impressive success story.

In the wake of the 2001 financial crisis, the government managed to cut the public debt-to-GDP ratio from 75 per cent to about 40 percent currently. While signs of improving external balances in recent months are clearly welcome, the prospective turnaround is still set to be comparatively modest, with the current-account deficit shrinking gradually from 10 per cent of GDP in 2011 to 9.3 per cent of GDP in 2012, and 8.7 per cent of GDP in 2013.


THE economy of Iran is the seventeenth largest in the world by purchasing power parity (PPP) and twenty-sixth by market value. The economy of Iran is a mixed and transition economy with a large public sector and some 50percent of the economy centrally planned. It is also a diversified economy with over 40 industries directly involved in the Tehran Stock Exchange. Yet, most of the country’s exports are oil and gas, accounting for a majority of government revenue in 2010. Iran is one of the few major economies that have maintained positive growth in the aftermath of the 2008 global financial crisis, despite sanctions imposed by the international community as a result of the country’s nuclear program. High oil prices in recent years have enabled Iran to amass well over $100 billion in foreign exchange reserves. Whilst this has aided self-sufficiency and domestic investment, double-digit unemployment and inflation remain problematic.

Iran, the second-largest oil producer in the Organization of Petroleum Exporting Countries, is under a series of trade and financial sanctions imposed by the United Nations and the U.S. over its nuclear program. A European Union embargo on purchases of Iranian crude is also set to come into force on July 1. The economy will shrink 1 percent this year as the international trade embargo tightens, according to the World Bank. Product boycotts and financial sanctions are expected to exact a toll on growth over 2012 and 2013. It predicted a contraction of 0.7 percent next year. The bank had predicted in January that Iran’s $480 billion economy would grow 2.7 percent and 2.9 percent this year and next.

Oil prices will “certainly” rise if the European Union moves ahead with an embargo in July and sanctions could backfire on those who impose them. Iran’s economy minister expects that as a result of these sanctions, oil prices will perhaps reach and hover around $160 per barrel. And the decrease in financial and economic output in Europe will truly be felt. In January, the International Monetary Fund warned that global crude prices could rise as much as 30 percent if Iran halted oil exports as a result of U.S. and European Union sanctions. The sanctions are aimed at curbing Iran’s nuclear ambitions. The West suspects Iran’s nuclear program is aimed at developing weapons, while Iran says it is for peaceful energy purposes.

Meanwhile, the government has revised and approved its annual budget taking into consideration the rise of oil prices that have appeared to mitigate the impact of US-led sanctions on its economy. The Islamic Republic’s elite Guardian Council gave its approval to the budget for Iran’s fiscal year to March 2013 at 5,560,000 billion rials ($453 billion). The budget, however, remains lower than that of the 2011-12 fiscal year, which was set at $484 billion. Iran has allocated $49 billion of oil revenues to the government’s budget, with the forecast price of $85 a barrel, up from $81 last year. The country has built up large reserves of gold and foreign currencies to withstand the economic embargo imposed by the West over its disputed nuclear programme.

The Iranian Oil Ministry plans invest 100 trillion rials (almost $8.2 billion) in 12 projects in the oil and gas sectors in the current Iranian calendar year, which ends on March 20, 2013. The money will be spent mainly on developing the South Pars gas field, developing other oilfields in the Persian Gulf, and establishing LNG plants. According to the Fifth Five-Year Development Plan (2010-2015), $30 billion should be invested in the oil and gas industries every year. The global economic sanctions imposed on the Islamic Republic would not hinder the development of the country’s oil industry. The ministry is committed to accelerating the implementation of its development plans, financed through the financial system and through government bonds.


AFGHANISTAN’S economy is recovering from decades of conflict. The economy has improved significantly since the fall of the Taliban regime in 2001 largely because of the infusion of international assistance, the recovery of the agricultural sector, and service sector growth. Despite the progress of the past few years, Afghanistan is extremely poor, landlocked, and highly dependent on foreign aid, agriculture, and trade with neighboring countries. Much of the population continues to suffer from shortages of housing, clean water, electricity, medical care, and jobs.

Afghanistan’s living standards are among the lowest in the world. While the international community remains committed to Afghanistan’s development, pledging over $67 billion at four donors’ conferences since 2002, the Government of Afghanistan will need to overcome a number of challenges, including low revenue collection, anemic job creation, and high levels of corruption, weak government capacity, and poor public infrastructure. According to the World Bank, Afghanistan’s economic growth has slowed but remains at satisfactory levels to generate rising average standards of living.

Real GDP growth is expected to close 2011-12 at 5.7 percent, down from 8.4 per cent in 2010-11. The slowdown in growth was mainly due to weather-related conditions which lowered agriculture output to below-average levels. In 2012-13 GDP growth is expected to pick up again and is projected to reach 7.1 per cent. Aid levels are expected to decline significantly, which will reduce GDP growth to levels of 4-5 per cent per year. A sizeable financing gap will continue to exist through 2021 despite projections of healthy growth in domestic revenue collection.

Afghanistan’s biggest economic challenge is finding sources of sustainable and equitable growth. The Afghanistan transition process, which started in July 2011, is well under way. By April 2012, the International Security Assistance Force had completed the first and second phases of transition through the handover of responsibilities to Afghan national security forces in some 17 out of the 34 provinces. The first significant drawdown of foreign forces will be later in 2012, and all foreign ground forces are expected to have left Afghanistan by 2014. Wealthy Afghans are carrying about $8 billion - almost double the state budget - in suitcases out of the country each year, an amount likely to rise as the exit of foreign troops nears and threatening to ruin the fragile economy.

Although Afghanistan is rich in natural resources, very little has been done to explore them. Some of these resources are extensive deposits of natural gas, petroleum, coal, copper, chromite, talc, barites, sulfur, lead, zinc, iron ore, salt, and precious and semiprecious stones. However, the country’s rugged terrain and lack of transportation network restrict trade activities.

Afghanistan needs economic growth and good governance just as much as security. Much progress has been made towards laying the foundations for economic stability and growth over the last five years or so, despite the very difficult security situation and the challenges of building political and economic institutions.

But Afghanistan remains one of the poorest countries in the world with GDP per capita of $528 with more than a third of its population living below the poverty line and heavy reliance still on donor grants. In addition, poor governance and corruption are endemic and continue to take their toll, as highlighted by last year’s crisis at Kabul Bank, which could have resulted in a full-blown banking crisis without intervention. Despite the large volume of aid, most international spending “on” Afghanistan is not spent “in” Afghanistan, as it leaves the economy through expatriated profits of contractors and outward remittances.