Turkey - Municipal sector review

Page 1 TURKEY MUNICIPAL SECTOR REVIEW September 2004 Turkey Country Unit Infrastructure and Energy Services Department Europe and Central Asia Region The World Bank 36193 Page 2 Page 3 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 Page 4 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 Page 5 ANNEXES Annex 1 IllerBank Income Statements Iller Bank Balance Sheets Iller Bank Cash Flow Statements Annex 2 Iller Bank Investments Annex 3 Iller Bank