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Policy Notes
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Local government finance has taken on increasing importance in Turkey, with the evolving fiscal decentralization and the growing role of local administrations in public investment. The focus of this policy note is on sub-national borrowing as an essential component of the framework for sustainable sub-national finance. Sound management of sub-national borrowing is important for ensuring debt sustainability. Past problems with fiscal deficits by local administrations in Turkey have led to two major debt restructurings. The Government has undertaken many laudable improvements in the system of fiscal management and control of local administrations in recent years, in particular by regulating the procedures for borrowing, raising the requirements for accounting and reporting, and tightening the terms for Treasury guarantees of foreign borrowing. The rest of the policy note is organized as follows. The next section summarizes the framework for sub-national borrowing in Turkey and reviews areas for further development, including in particular, an effective insolvency mechanism. Section three presents rationales for a sub-national insolvency mechanism and describes how the entry points for reform have contributed to varying modalities across countries. Section four discusses key design issues for a sub-national insolvency mechanism, driven by the fundamental difference between public and private insolvency. Final section five presents possible medium-term reform options for Turkey
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Englisch
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