37
1 M. Coskun Cangöz (PhD.) Chief Economic Counsellor Capital Markets Conference September 18-19, 2011 - Doha Developing Bond Market in Turkey: The Role of the State
1
M. Coskun Cangöz (PhD.)
Chief Economic Counsellor
Capital Markets Conference
September 18-19, 2011 - Doha
Developing Bond Market in Turkey: The Role of the State
G7: Debt Stock / GDP
2
0
20
40
60
80
100
120
Source: IMF World Economic Outlook, April 2011, Figure 1.12
Turkey: Debt Stock / GDP
3
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
19
58
19
59
19
60
19
61
19
62
19
63
1964
19
65
19
66
1967
19
68
19
69
1970
19
71
19
72
1973
19
74
19
75
19
76
19
77
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
Source: IMF - FAD Historical Public Debt Database, September 2011
4
Domestic Debt Stock / Money Supply
Source: CBRT, Undersecretariat of Treasury
0,0%
30,0%
60,0%
90,0%
120,0%
150,0%
180,0%
210,0%
240,0%
270,0%
300,0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Jul-12
Domestic Debt Stock / M2
5
Government Bond Market Domestic Bond Stock
Billion TRY % GDP % of Total Debt Stock % Issued to the
Market
2000 36.4 21.9 57.2 66.4
2001 122.2 50.9 68.7 34.0
2002 149.9 42.8 61.8 47.2
2003 194.4 42.7 68.7 52.3
2004 224.5 40.2 70.9 62.9
2005 244.8 37.7 73.8 69.2
2006 251.5 33.2 72.9 71.6
2007 255.3 30.3 76.6 73.8
2008 274.8 28.9 72.3 76.1
2009 330.0 34.6 74.7 81.5
2010 352.8 32.1 74.5 85.4
2011 368.8 28.5 71.1 83.5
2012 July (*) 382.1 - 73.0 82.4
(*) Provisional.
Source: Treasury
Bonds and Bills Market
Total Nominal Value Total Nominal Value Total Nominal Value Total Nominal Value Total Nominal Value Total Nominal Value
Million TRY Million $ Million TRY Million $ Million TRY Million $
2001 39,777 37,297 96,536 88,101 136,313 125,398
2002 102,095 67,256 133,037 89,463 235,132 156,720
2003 213,098 144,422 149,312 100,423 362,410 244,845
2004 372,670 262,596 223,549 157,597 596,218 420,193
2005 480,723 359,371 230,048 172,081 710,771 531,451
2006 381,772 270,183 201,083 140,301 582,854 410,484
2007 363,949 278,873 239,764 184,015 603,714 462,888
2008 300,995 239,367 208,020 164,452 509,015 403,819
2009 417,052 269,977 207,397 134,529 624,449 404,506
2010 446,183 297,710 251,950 168,553 698,134 466,264
2011 478,281 291,123 391,173 235,072 869,454 526,195
2012 Jan-Aug. 236,083 131,806 337,886 184,841 573,969 316,647
Source:ISE
ISE OTC TOTAL (ISE & OTC)
Secondary Bond Market
7
The Role of the State Legislation and Infrastructure
8
Developing
Government Bond Market
9
Trivet of Public Debt Management
Legal Framework
Public Finance and Debt Management Law
Pre-defined procedural rules
Transparency and accountability
Organizational Framework
Accountable debt management organization
Operational & Strategic Framework
Risk based analyses and strategies
Investor oriented strategies
10
Legal Framework
The Law No 4749 : Regulation on Public
Finance and Debt Management
Defines Treasury as the soul borrowing entity
Specifies the limits for new borrowing and guarantee
Defines the procedurel rules domestic borrowing
external borrowing
guarantee issuance and undertakings
on-lent loans
collection of financial receivables
Re-structures debt management organization
Assures transparency and accountability in deby management
11
Accountable Organizational Structure
GDPF / Treasury
DMC
Decision on Strategic
Benchmarks
Propose
Benchmarks
Propose
Guarantee Limit
Propose
Guarantee Limit Parliament
Set
Borrowing Limit
Set
Guarantee Limit
Law No 4749
GDPF / Treasury
Annual Financing
Program
Monthly Debt
Management Report
Monthly
Risk Bulletin
12
Risk-based Analysis and Strategies:
Management of Market Risk
Strategic Benchmarks
Reduce liquidity risk: Keeping a liquidity buffer
Reduce currency risk: Borrowing mainly in local currency
Reduce interest rate risk: Using fixed rate instruments
Reduce refinancing risk: Increasing the average maturity of borrowing
Cost at Risk (C@R) methodology is adopted in determining the
strategic benchmarks
13
Essentials of Market Development
Clear aims and achievable targets
Securing full financing need
Developing a liquid secondary market
14
Securing Full Financing Need
- Transparency and Predictability
Annual Financing Program
3-month Auction Calendars
Regular monthly meetings with Primary dealers
Road shows and investor meetings
Monthly and Annual Debt Management Reports
Reporting to the Parliament
- Investor oriented instrument selection
Zero coupon bonds
Fixed coupon bonds
Inflation linked bonds
Floating rate notes
Revenue indexed bonds
15 15
Transparency and Predictability:
Treasury Financing Program
(Billion TRY)
(Realization) (Realization) (Realization) (Program) (Realization)
I- TOTAL DEBT SERVICE 146,5 148,9 194,8 152,8 125,9
Principal 97,0 96,4 146,9 110,3 92,5
Interest 49,5 52,5 47,9 42,6 33,4
Domestic Debt Service 129,6 134,2 178,1 135,0 111,2
Principal 86,0 88,1 136,2 99,3 83,7
Interest 43,6 46,2 41,9 35,8 27,5
External Debt Service 16,9 14,6 16,7 17,8 14,7
Principal 11,0 8,3 10,7 11,0 8,8
Interest 5,9 6,4 6,0 6,8 5,9
II- FINANCING 146,5 148,9 194,8 152,8 125,9
Total Borrowing 107,2 150,2 173,9 131,7 103,0
External Borrowing 10,9 11,3 14,9 12,5 6,6
Domestic Borrowing 96,3 138,9 159,0 119,1 96,4
Other Financing (**) 39,3 -1,3 20,9 21,1 22,9
TOTAL ROLL - OVER RATIO %74,3 %103,5 %89,3 %88 %86,0
(*) Cash Based
(**) The cash primary balance, privatization revenues, receipts from on lending and guaranteed debt, receipts from SDIF,
use of cash account and FX changes are shown under other financing item.
20102009 2011 2011 Jan- Sept.2008
16 16
A Shift from Retail Investors to Institutional Investors
December 2003
August 2011
Market
84.0%
Public
16.0%
Non-Bank
Sector
36.2%
Banking
Sector
57.9%
Other 2%Mutual
Funds 3.9%
Corporate
Investors
49.7%
Non
Residents
46.7%
Retail Investors 3.6%
Market
52.3%
Public
47.7%
Mutual
Funds
6.4%
Non-Bank
Sector
30.5%
Other
16.7%
Banking Sector
46.4%
Corporate
Investors
34.1%
Non
Residents
14.4%
Retail
Investors
51.5%
17
Developing a Liquid Secondary Market
- Yield curve construction
Benchmark issuance strategy
Market making mechanism (Primary dealership system)
Efficient electronic trading facility (Organized market: ISE )
OTC market
- Well defined taxation rules
- Supporting derivatives market
18
Developing Local Currency Bond Market Extending the Local Curreny Yield Curve
0
5
10
15
20
25
30
35
40
45
50
55
60
0 500 1000 1500 2000 2500 3000 3500
(%)
(DTM)
2008
2010
2006
2002
Sept. 10, 20122011
Source: Treasury
19
Developing Local Currency Bond Market Extending the CPI Bonds Yield Curve
1
2
3
4
5
6
7
0 200 400 600 800 1000 1200 1400 1600 1800 2000 2200 2400 2600 2800 3000 3200 3400 3600 3800
(%)
(DTM)
August 29, 2009
August 31, 2010
August 26, 2011
August 31, 2012
Source: Treasury
Share of Foreign Investors in Total Domestic Debt Stock (%)
Increasing Liquidity in Primary and Secondary
Market with Additional Inflows
4.4
7.1
10.3
13.6 13.4
10.3
8.6
12.5
17.3
20.5
0
5
10
15
20
25
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012August
(%)
21
Developing
Corporate Bond Market
A Space for the Development of Corporate
Bond Market...
- Still infant but growing fast
Deposit Banks
Issues in 2010: 1 billion TL
Issues in 2011: 17.4 billion TL
Issues in 2012: 19.8 billion TL
- Issues concentrated at the short-end of the yield curve while
Treasury extends maturities
- Government bonds: benchmarks for pricing corporate bonds
Spreads 50-110 bps
23 23
... and a Contribution from the Policy Perspective:
Central Government Budget Deficit (% of GDP)
(*) 2010: Provisional
(**) 2012-2014: Medium Term Program targets
Source: Ministry of Finance
11,911,5
8,8
5,2
1,10,6
1,6 1,8
5,5
3,6
1,7 1,5 1,41,0
0
2
4
6
8
10
12
14
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 * 2011** 2012** 2013** 2014**
24
... and a Contribution from the Policy Perspective:
EU Defined Debt Stock (GDP%)
46.5 46.1
67.7
59.6
52.7
74.0
39.9
40.0 42.239.8
37.035.0
32.0
25
30
35
40
45
50
55
60
65
70
75
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
2011(*
)
2012(*
)
2013(*
)
2014(*
)
(*) 2012-2014 Medium Term Program targets
Source: Treasury
25
The Role of the State Political and Social Influences
Why Government Borrows?
Fiscal Policy
Deficit financing
Low (or reducing) tax revenues
High (or increasing) government spending
Economic and Financial Policy
Introduction of fiscal stimulus packages
Reducing tax revenues
Increasing government expenditures
Nationalization of private-sector debt
Recapitalization of banking sector
26
Redistributive Effects of Debt
Provide an alternative to avoid taxation while financing
the expenditures
Creates a room for additional expenditures without
collecting tax
Allows a finer control over the promises made to the
voters to appeal them and provides a temporary power
by providing more control over resources
Creates limits on financial elasticity’s of future
governments to change spending priorities
Change income distribution
27
28
Redistributive Effects of Debt (cont…) Borrowing
Transferring from the capital owners Financial sector
High income groups
Foreign capital
Tax payers of the period of (t+n)
Economic and social sectors, benefiting from the allocations Citizens of the period of (t)
Debt Service Transferring to capital owners
Financial sector
High income groups
Foreign capital
Economic and social sectors, paying tax Tax payers of the period of (t)
Tax payers of the period of (t+n)
29
Net Financing (1974 – 2011)
29
0,0
20,0
40,0
60,0
80,0
100,01975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
% G
DP
Total Debt Service Total Borrowing
30
Borrowing (1975-2011)
30
0,0
20,0
40,0
60,0
80,0
100,01975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
% G
DP
0,0
1,0
2,0
3,0
4,0
5,0
6,0
7,0
8,0
9,0
% G
DP
Domestic Borrowing External Borrowing (Right)
31
Debt Service (1975-2011)
31
0,0
20,0
40,0
60,0
80,01975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
% G
DP
0,0
1,0
2,0
3,0
4,0
5,0
6,0
% G
DP
Domestic Debt Service External Debt Service (Right)
32
Transfers: Interest Payments (1975-2011)
32
Interest Expenditures
0,0
2,0
4,0
6,0
8,0
10,0
12,0
14,0
16,0
18,0
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
% G
DP
33
Transfer to Capital Owners (1975-2011)
0,0
2,0
4,0
6,0
8,0
10,0
12,0
14,0
16,0
18,01975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
% G
DP
0,0
0,2
0,4
0,6
0,8
1,0
1,2
1,4
1,6
% G
DP
Domestic Debt Interest Payments External Debt Interest Payments (Right)
34
Financing the Transfers (1975-2011)
Primary Balance
-4,0
-2,0
0,0
2,0
4,0
6,0
8,0
10,0
12,0
14,0
19
75
19
77
19
79
19
81
19
83
19
85
19
87
19
89
19
91
19
93
19
95
19
97
19
99
20
01
20
03
20
05
20
07
20
09
20
11
% G
DP
35
Income Distribution 1987 - 2010
35
40
45
50
55
60
1987 1994 2002 2003 2004 2005 2006 2007 2008 2009 2010
Shar
e (%
)
0,30
0,35
0,40
0,45
0,50
Highest 20 % of Household Income Percentile Gini Index (Right Axis)
36
Income Distribution 1987 - 2010
36
40
45
50
55
60
1987 1994 2002 2003 2004 2005 2006 2007 2008 2009 2010
Shar
e (
%)
0
20
40
60
80
100
120
140
160
180
Inte
rest
Rat
e (%
)
Highest 20 % of Household Income Percentile
Domestic Borrowing (Right Axis)
