TURKEY
MUNICIPAL SECTOR REVIEW
September 2004
Turkey Country Unit
Infrastructure and Energy Services Department
Europe and Central Asia Region
The World Bank
Abbreviations, Acronyms and Currency Equivalents
EIB = European Investment Bank,
GDP = Gross Domestic Product
GNP = Gross National Product
IDF = Institutional Development Facility
IFI = International Financial Institution
Iller Bankasi = Bank of Provinces
KfW = Kreditanstalt fur Wiederaufbau
MoF = Ministry of Finance
MoI = Ministry of Interior
PFPSAL = Programmatic Financial and Public Sector Adjustment Loan
PIP = Public Investment Program
PTT = Turkish Post, Telegraph and Telecom
SPA = Special Provincial Administration
SPO = State Planning Organization
TGS = Treasury Guarantee Scheme
Currencies and GDP Estimates
Year
|
GDP, Current. Trillion TL
|
Average Exchange rate, TL per US$
|
GDP, Current, Million US$
|
1997
|
28,836
|
151,239
|
190,665
|
1998
|
52,225
|
260,080
|
200,804
|
1999
|
77,415
|
417,758
|
199,670
|
2000
|
124,583
|
623,947
|
199,669
|
2001
|
181,409
|
1,225,490
|
148,040
|
Vice President:
Country Director:
Sector Director:
Sector Manager:
Task Team Leader:
|
Shigeo Katsu
Andrew N. Vorkink
Hossein Razavi
Lee Travers
Sudipto Sarkar
|
TURKEY
MUNICIPAL SECTOR REVIEW
Table of Contents
FOREWORD i
EXECUTIVE SUMMARY ii
1. INTRODUCTION 1
Need for a Strategy 1
2. OVERVIEW OF URBAN AND LOCAL GOVERNMENT ISSUES 5
Urbanization Issues 5
Overview of Local Government 8
Local Government and the National Economy 11
An Example: Municipal Services of Water and Wastewater 14
3. CENTRAL GOVERNMENT FINANCING AND CONTROL 16
Central Government Oversight 16
Issues 17
Reforms 18
Central Government Transfers 21
Issues 24
Reforms 25
4. MUNICIPAL REVENUES 27
Locally Raised Revenues 27
Locally Raised Revenues and Population Size 29
Collection of Real Estate Tax 30
Issues 31
Reforms 33
5. MUNICIPAL BORROWING 35
Current Situation 35
The Treasury Guarantee Scheme (TGS) 36
Iller Bank 37
Issues 42
Reforms 44
Iller Bank Reform 46
Iller Bank Reform - Long Run 48
6. CONCLUSIONS AND NEXT STEPS 50
Approach Towards the Reform 50
Potential Role of the World Bank 54
Iller Bank Income Statement 1
Iller Bank Investments 1
Iller Bank – Considerations for a reform 1
World Bank Guarantee Instruments 1
Lenders 4
Municipal 4
LFI 4
World Bank 4
Local 4
Central 4
LFI 6
Lenders 6
World Bank 6
ANNEXES
Annex 1 IllerBank Income Statements
Iller Bank Balance Sheets
Iller Bank Cash Flow Statements
Annex 2 Iller Bank Investments
Annex 3 Iller Bank – An Option for Reform
Annex 4 World Bank Guarantee Schemes
TURKEY MUNICIPAL SECTOR REVIEW
FOREWORD
During the last few years concerns about the sustainability of the Turkish municipal sector as a whole have emerged as many towns and cities have not met their financial obligations to the State. Treasury loan guarantees have been invoked as many municipalities and water utilities have failed to honor their debt service commitments. Excessive dependence on the State on the part of the municipalities is limiting the quality of local services and reducing the accountability of local authorities.
The current Government recognizes the issues related to the municipal sector and has embarked on an overall public sector reform program that includes activities for the municipal sector. A draft framework law on Public Administration has been prepared and is currently under discussion. This framework law will be followed by other laws such as the Municipal Law, Municipal Revenue Law that are expected to enhance municipal financial management, strengthen the local institutional capacity, and increase local revenues.
This report forms the basis of the discussions the Bank is currently having with the Government regarding the municipal sector in the context of the public sector reform agenda. While the issues presented in the paper will be addressed through the various initiatives taken by the Government, the report summarizes the current state of affairs, reflects the discussions the Bank has had with the Government, and is assisting the Government in forming policies. The suggestions made in this note have been taken into account at the formulation of the draft Public Administration Law and amendments to the Iller Bank Law.
The report is a compilation of three background papers on central government oversight and control, local government operations, and activities related to municipal borrowing. These papers were discussed in a two-day consultative workshop in Ankara and the discussions were reflected in the draft report that was submitted to the Government in October 2002. Given the ongoing changes in the sector, the Government provided two sets of comments – in April 2003 and October 2003. These comments are reflected in the report.
The primary authors of this report are Anders Zeijlon and Sudipto Sarkar (Task Team Leader). Other team members are: Anwar Shah, Samir El Daher, Alptekin Orhon, Kyoichi Shimazaki, Jane Ebinger, Bülent Özgün (consultant), Sinan Erer (consultant), Hakan Mat (consultant) and Elif Yukseker. Contributions and comments are gratefully acknowledged from Lee Travers, James Parks, Motoo Konishi, Takao Ikegami, Ismail Arslan, Kamer Karakurum Özdemir, Mathew Verghis, Jean-Jacques Dethier, Serdar Yilmaz, and Jan Brzeski. The team also appreciates the comments received from many officials in central and local government agencies in Turkey, including Treasury, Ministry of Interior, Iller Bank, the State Planning Organization, and a number of municipalities and other local government organizations. The peer reviewers for the document are Deborah Wetzel and William Dillinger.
TURKEY MUNICIPAL SECTOR REVIEW
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