Document of The World Bank Group

FOR OFFICIAL USE ONLY

Report No. 11096-TR

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL FINANCE CORPORATION

MULTILATERAL INVESTMENT GUARANTEE AGENCY

COUNTRY PARTNERSHIP FRAMEWORK

FOR

THE REPUBLIC OF TURKEY

FOR THE PERIOD FY18-FY21

July 28, 2017 Turkey Country Management Unit Europe and Central Asia The International Finance Corporation Europe and Central Asia The Multilateral Investment Guarantee Agency

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank Group authorization.

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CURRENCY EQUIVALENTS Exchange Rate Effective July 28, 2017

Currency Unit 1 TL = 3.56 US$

FISCAL YEAR January 1 – December 31

ABBREVIATIONS AND ACRONYMS

ASA Advisory Services and Analytics IFC International Finance Corporation B40 Bottom 40 percent of the population IFI International Financial Institution

BOTAS Boru Hatlari ile Petro Tasima A.S. IMF International Monetary Fund CEM Country Economic Memorandum IPA Instrument for Pre-Accession CLR Completion and Learning Review IPARD Instrument for Pre-Accession in Rural Development CPF Country Partnership Framework MIGA Multilateral Investment Guarantee Agency CPS Country Partnership Strategy MSME Micro, Small, and Medium Enterprises CTF Clean Technology Fund NBFI Non-Bank Financial Institution DP Development Program NCD Non-Communicable Disease

DPL Development Policy Loan NPL Non-Preforming Loan DPO Development Policy Operation OECD Organization for Economic Co-operation and

Development EBRD European Bank for Reconstruction and Development OIZ Organized Industrial Zones

EC European Commission PforR Program for Results ECA Europe and Central Asia PISA Program for International Student Assessment

ESMAP Energy Sector Management Assistance Program PLR Performance and Learning Review EU European Union PPP Public-Private Partnership

EUR Euro RAS Reimbursable Advisory Services FDI Foreign Direct Investment SCD Systematic Country Diagnostic FSA Financial Sector Assessment SIDA Swedish International Development Agency FRiT Facility for Refugees in Turkey SOE State-Owned Enterprise FY Fiscal Year SORT Systematic Operations Risk-rating Tool

FSRU Floating Storage and Regasification Unit SuTP Syrians under Temporary Protection GDP Gross Domestic Product TA Technical Assistance GEF Global Environment Facility TANAP Trans-Anatolian Pipeline

GFDRR Global Facility for Disaster Reduction and Recovery TIMSS Trends in International Mathematics and Science Studies GHG Greenhouse Gas WB The World Bank IBRD International Bank for Reconstruction and Development WBG The World Bank Group ICT Information and Communication Technology

IBRD IFC MIGA Vice President: Director: Task Team Leader: Core Team Members:

Cyril E. Muller Johannes Zutt Eavan O’Halloran Ximena Del Carpio, Tamara Sulukhia, Alper Ahmet Oguz, P. Facundo Cuevas, Tunya Celasin, Donato de Rosa, Pinar Yasar

Dimitris Tsitsiragos Tomasz Telma George Konda, Aisha Williams, Enrique Lora

Keiko Honda Merli Baroudi Gianfilippo Carboni

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TURKEY COUNTRY PARTNERSHIP FRAMEWORK

Table of Contents I. INTRODUCTION .................................................................................................................. 1

II. COUNTRY CONTEXT AND DEVELOPMENT AGENDA ................................................... 1

II.1 Social and Political Context ................................................................................................. 1

II.2 Recent Economic Developments and Prospects .................................................................. 3

II.3 Poverty and Shared Prosperity ............................................................................................. 6

II.4 Development Challenges...................................................................................................... 7

III. WORLD BANK GROUP PARTNERSHIP FRAMEWORK .................................................. 9

III.1. Government’s Program and Medium-term Strategy .......................................................... 9

III.2 Lessons from the CPS Completion and Learning Review (CLR) and Independent Evaluation Group (IEG) Evaluations ........................................................................................ 10

III.3. Proposed WBG Country Partnership Framework FY18-21 ............................................ 12

III.4 Implementing the FY18-21 Country Partnership Framework .......................................... 25

IV. MANAGING RISKS TO THE CPF PROGRAM .................................................................. 28

Annex 1. CPF Results Matrix ...................................................................................................... 31

Annex 2. CPS (FY12-FY16) Completion and Learning Review Report ..................................... 43

Annex 3. Selected Indicators of Bank Portfolio Performance and Management ........................ 70

Annex 4. Operations Portfolio (IBRD/IDA and Grants) .............................................................. 71

Annex 5. Statement of IFC’s Held and Disbursed Portfolio ........................................................ 72

Annex 6. MIGA Active Guarantees.............................................................................................. 75

Annex 7. Summary note of Country Gender Assessment 2016 ................................................... 76

Annex 8. Citizen Engagement Roadmap for Turkey CPF FY18-21 ............................................ 79

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COUNTRY PARTNERSHIP FRAMEWORK FOR TURKEY (FY18-21)

I. INTRODUCTION

1. This Country Partnership Framework (CPF) for Turkey covers the period FY18-21. It is aligned with the objectives of Turkey’s 10th Development Plan and is based on the findings of a World Bank Group (WBG) Systematic Country Diagnostic (SCD) that was finalized in February 2017. The CPF aims to help Turkey to achieve its development objectives through building on the foundations of the existing program and consolidating gains in key areas where the WBG is already active, as well as developing the program further in areas which target the WBG twin goals of reducing extreme poverty and boosting shared prosperity. The CPF puts forward a flexible approach for the WBG’s program that is appropriate for a middle-income country of Turkey’s size and takes account of the evolving country and regional situation. 2. The choice of CPF priorities and objectives was informed by a broad consultative approach undertaken both in the preparation of the SCD and of the CPF. The SCD was prepared following several rounds of discussions with Turkey experts, academia, private sector, investors, and civil society actors. The CPF benefited from strategic consultations with Government on the role of the WBG in Turkey for the CPF period that allowed for alignment of the program with client demand. It also benefited from discussions with a variety of stakeholders, private sector representatives and development partners whose feedback was incorporated into the design of the CPF.

II. COUNTRY CONTEXT AND DEVELOPMENT AGENDA

II.1 Social and Political Context 3. Turkey has achieved commendable economic and social development results since the early 2000s, raising it to the world’s 17th largest economy and establishing it as a global presence. Macroeconomic stability, financial sector reform, closer economic ties with the European Union (EU), and a transformation of a significant part of the economy away from agriculture into manufacturing and services were core contributors to Turkey’s growth. Broad reforms supported a dynamic private sector, opened the country to foreign trade, incentivized significant infrastructure investments and resulted in higher incomes as well as increasing convergence of social indicators to OECD norms. Turkey’s GNI per capita rose from $3,115 in 2001 to $11,000 in 2015: poverty incidence more than halved and extreme poverty fell even more dramatically. Turkey’s development successes have been justifiably lauded, with many countries looking to its development model for inspiration. 4. Going forward, Turkey is facing political, security and economic challenges. In recent years, various commonly-accepted indicators of the quality of a country’s institutions (including Doing Business, the Corruption Perceptions Index, and the World Economic Forum’s Competitiveness Index) have shown that Turkey remains below the levels obtained in high-income countries, and that the distance from the frontier has been widening. Since early 2015, the country

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has also experienced a series of political challenges, including a long election cycle (with parliamentary elections in both June and November 2015), a Cabinet reshuffle in May 2016, and a failed coup attempt in July 2016. Following the failed coup attempt, the government decreed a state of emergency to undertake what it has described as counter-terrorism measures, including the dismissal of civil servants and the transfer of assets of some entities that it has found to be linked with terrorist organizations. In April 2017, voters approved a set of constitutional reforms that will create an executive presidency and bring about important changes in the relations between Government branches.

5. Regional dynamics and impacts from the Syrian conflict are also imposing significant challenges. The government of Turkey is hosting about three million Syrians who have the status of Syrians under Temporary Protection (SuTPs). Turkey is providing for the SuTPs under its own laws and mostly at its own expense, including registration, freedom of movement, housing, health and education services and prospects for legal employment (less than ten percent of SuTPs are hosted in camps). Despite this commendable approach, the presence of such a large number of SuTPs is creating pressures on services and the labor market. At the same time, the geopolitical turmoil in the Middle East region and its implications for the east and south-east of Turkey have affected local economies in some regions, depressed tourism and discouraged investment.

6. Turkey’s relationship with the EU is characterized by peaks and troughs. It has benefited significantly from EU economic ties since the 1995 customs union agreement. In 2005, it initiated EU accession negotiations, which provided an anchor for its reform path and a strong positive indicator of its long-term aspirations. Although the EU negotiations have slowed down since the early 2010s, two new chapters in the accession process were opened in 2015/16. In late 2015, the crisis resulting from high numbers of SuTPs crossing from Turkey into Europe appeared to provide an incentive for quicker progress. Turkey agreed to work further with the EU to stem the transit of irregular migration to Europe, while the EU agreed to admit SuTPs from Turkey via a humanitarian admission scheme, accelerate the updating of the Customs Union, the EU negotiation process and the possibility of Turkish visa-free access to the EU. The EU also pledged €6 billion in assistance to host SuTPs in Turkey. While the irregular crossings from Turkey to Greece have greatly decreased and €3 billion in EU support was committed, progress on visa-free access to the EU Schengen Area for Turkish citizens and developing the Voluntary Humanitarian Admission Scheme for resettlement of SuTPs to the EU has remained slow. Even so, because the EU remains Turkey’s largest trading and development partner, taking about half of exports, harmonization to EU trade and investment standards will continue to dominate Turkey’s reform agenda. 7. Even within this challenging environment, Turkey’s development foundations remain sound. Sitting at the crossroads of Asia and Europe, with a dynamic private sector and young population, and access to the EU, Turkey continues to attract global investors. Strong macro-economic management enabled Turkey to weather the global financial crisis relatively well. But past achievements are no guarantee of future success. How well it copes with its current political, social and economic challenges will determine how much foreign and domestic investment it continues to attract, and when it will achieve its aspiration to become a high-income country.

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II.2 Recent Economic Developments and Prospects

8. Turkey quickly rebounded from the 2009 global financial crisis, enjoying high growth rates until 2015, at the expense of large external and internal imbalances. Its GDP grew on average by 7.4 percent between 2010 and 2015, dwarfing the growth rates in peer countries. It experienced a sizeable current account deficit to keep the investment rate above 25 percent of GDP. While these investment rates helped it catch up, there is still room for improving the quality of investments as more than half of spending was in construction. Prudent fiscal management has been a cornerstone of Turkey’s good economic performance, but accommodative monetary policy has amplified the effects of cheap foreign finance, exacerbating internal and external vulnerabilities, with persistent current account deficits and an inflation rate above target.

Table 1: Key Macroeconomic Indicators and Projections1 Indicators 2013 2014 2015 2016 2017f 2018f 2019f 2020f

Real Economy Annual percentage change, unless otherwise indicated

Real Gross Domestic Product (GDP) 8.5 5.2 6.1 2.9 4.0 3.5 4.0 4.0 Private Consumption Contributions (in percentage points) 5.0 1.9 3.4 1.4 3.0 1.9 2.2 2.1

Government Consumption Contributions (in percentage points) 1.1 0.4 0.5 1.0 1.2 0.3 0.5 0.5

Gross Fixed Investment Contributions (in percentage points) 3.8 1.5 2.7 0.9 0.9 1.1 1.2 1.4

Exports, GNFS, Contributions (in percentage points) 0.3 1.8 0.9 -0.5 1.3 1.2 1.2 1.1

Imports, GNFS, Contributions (in percentage points) -2.1 0.1 -0.4 -0.9 -1.0 -1.0 -1.1 -1.2

Consumer Price Index (average) 7.5 8.9 7.7 7.8 10.1 8.6 7.9 7.1

Fiscal Accounts Percent of GDP, unless otherwise indicated Total Revenues 34.6 33.8 34.2 34.7 34.3 34.1 34.3 34.2 Expenditures 35.2 34.3 34.3 36.3 36.4 35.8 35.7 35.4 General government balance -0.6 -0.5 -0.1 -1.6 -2.1 -1.6 -1.3 -1.2 Government Debt Stock 33.5 31.0 30.0 30.5 30.0 29.4 27.9 26.7 Balance of Payments Percent of GDP, unless otherwise indicated Exports Total 22.0 23.6 23.1 21.9 25.1 25.7 26.3 27.3 Imports Total 28.0 27.6 25.9 24.8 28.9 29.3 30.1 31.4 Primary and Secondary Income -0.8 -0.7 -1.0 -0.8 -0.9 -0.9 -0.9 -0.7 Current account balance (% of GDP) -6.7 -4.7 -3.7 -3.8 -4.7 -4.5 -4.6 -4.8 Net Foreign Direct Investment 1.0 0.6 1.4 1.1 1.1 1.2 1.3 1.4 Net Portfolio Investment 2.5 2.2 -1.8 0.7 1.8 1.8 1.8 1.9 Net Other Investment 4.1 1.6 1.6 0.8 0.9 1.5 1.5 1.6 Change in Reserve Assets -1.0 0.1 1.4 -0.1 0.9 0.0 0.0 -0.1 Net Errors and Omissions 0.2 0.2 1.2 1.3 0.0 0.0 0.0 0.0 Memorandum Item Nominal GDP (billion TL) 1,810 2,045 2,338 2,591 2,973 3,339 3,751 4,181 Source: WB and IMF estimates (February 2017), TURKSTAT, Ministry of Development, Central Bank of Republic of Turkey 9. Turkey’s GDP growth declined to 2.9 percent in 2016, amid geopolitical turmoil, unfavorable global developments and the failed coup attempt (Table 1). Following the failed coup attempt, households delayed spending (especially on durable goods) and corporates postponed key investments decisions, resulting in lower consumption and investment, which was only partly offset by higher government spending. On the external side, imports fell due to slower 1 Figures in this table reflect the decision taken in December 2016 to revise the methodology for national accounting to align with EU regulations (ESA 2010). The revisions increased 2015 GDP by about $140 billion to $851 billion, increased GDP per capita by $2,000 to more than $11,000, and annual growth rates increased: the average growth rate for 2002-07 increased from 6.8% to 7.9%, while the average growth rate for 2012-15 increased from 3.3% to 6.2%.

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domestic demand, and exports contracted due to weaker external demand and volatility in economic ties with some trading partners. The non-agricultural unemployment rate rose from 12.1 percent in January 2016 to 14.3 percent in December 2016. 10. The current account deficit slightly increased to 3.8 percent of GDP in 2016, mostly due to falling tourism revenues and has started to widen in 2017 along with the rebound in global oil prices. The current account deficit declined from 6.7 percent of GDP in 2013 to 3.7 percent of GDP in 2015, thanks to cyclical factors, such as an increased gold balance and a smaller energy bill owing to the collapse of global oil prices. While the core balance remained mostly flat due to weaknesses in Turkey’s main trading partners, the services balance deteriorated due to substantially lower tourism revenues resulting from security concerns and Russian sanctions. This offset the improvement in the energy bill, increasing the current account deficit to 3.8 percent of GDP in 2016. In 2017, the energy and gold excluded trade deficit has started to narrow, thanks to strengthening growth in the EU. Going forward, possible rising energy prices are expected to lead to a larger current account deficit in the medium-term. 11. Portfolio outflows from the bond market accelerated in late 2016, due to domestic and external factors but recovering modestly in 2017. The result of the United States (US) presidential election and anticipation that the Federal Reserve will increase interest rates faster than originally expected decreased global risk appetite, triggering outflows from most developing countries. In Turkey, slowing GDP growth, rising inflation, a widening current account deficit and the unorthodox response of the Central Bank to a depreciating lira triggered investor concerns. Against this backdrop, outflows (non-residents) from the bond market amounted to $3.2 billion in Q4, while the equity market witnessed marginal inflows. The outflows increased the benchmark 2-year government bond yield by more than two percentage points, to 11.15 percent, while the lira depreciated by more than 25 percent between the end of Q3 and the end of January 2017. Improvements in global risk appetite have triggered capital inflows to developing economies in 2017, with inflows into the Turkish bond market amounting to $1.7 billion in January-April. 12. Monetary policy decisions in the past three years have allowed inflation consistently to exceed the central bank’s 5 percent target. A-sharp increase in food prices, persistent depreciation of the lira, and accommodative monetary policy kept inflation well above the target in 2014 and 2015. In 2016, inflation reached 8.5 percent, with lower food inflation offset by tax increases on cars and tobacco products and higher transport and energy prices. The foreign-exchange pass-through associated with rapid lira depreciation, higher global energy prices and unfavorable weather conditions fed into prices and pushed headline inflation to 11.9 percent and core inflation to 9.4 percent by April 2017. In May, headline inflation slightly declined to 11.7 percent. Inflation is likely to hover in low double-digit levels throughout the year 2017.

13. Rapid depreciation of the lira prompted the central bank to increase interest rates in 2016-17. The central bank started simplifying its complex unorthodox monetary policy framework in March 2016 and narrowed the width of its interest rate corridor by cutting the overnight lending rate by 250 bps through September, but it followed an expansionary rather than neutral approach. Following rapid depreciation of the lira in late 2016, it reversed course and increased the 1-week repo and overnight lending rates by 50 bps and 100 bps, respectively, over November to January, and also returned to its previous policy framework. In January 2017, avoiding an outright hike in

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the policy rate, it ceased 1-week repo auctions and provided funding at the overnight lending rate at 9.25 percent and a late liquidity window rate at 11 percent in order to support the lira. The Central Bank further increased the late liquidity window rate to 11.75 percent in March and to 12.25 percent in April, taking into account the upward trend in inflation. Market watchers continue to seek a more orthodox policy framework to restore confidence, stem lira depreciation, and maintain price and financial stability. 14. Fiscal policy provided a considerable stimulus to growth in 2016 and 2017. While the Government maintained fiscal discipline in 2012-2015, with the central government budget deficit averaging 1.0 percent of GDP and the primary surplus averaging 1.5 percent, central government expenditures grew by 15.4 percent in 2016, due to increases in wages, transfers, and purchases of goods and services. A fall in capital spending and interest expenditures as a share of GDP helped to contain the increase in total expenditures. Despite lower economic activity, revenues grew by 14.8 percent because of tax restructuring and amnesties. As a result, the central government budget posted a moderate deficit of 1.1 percent of GDP in 2016, in line with fiscal targets. Expansionary fiscal policy will likely lead budget balances to exceed fiscal targets in 2017, while the growing PPP portfolio will warrant closer monitoring. 15. GDP growth is projected to increase to 4 percent in 2017 and remain at 4 percent in the medium term. In 2017, growth is expected to be driven by consumption (triggered by fiscal measures) and by net exports. As the fiscal stimulus is assumed to be temporary, GDP growth is expected to slow to 3.5 percent in 2018, before reverting to 4 percent in 2019 and 2020 on the back of reduced economic and political uncertainty.

16. Turkey’s growth model faces challenges that are likely to keep growth subdued in the medium-term. With an expected tightening in global liquidity in the medium-term, Turkey`s large external financing requirements pose downside risks to growth. The 2016 current account deficit of 3.8 percent is expected to rise to 4.7 percent of GDP in 2017, and external debt equivalent to almost 20.3 percent of GDP is coming due by early 2018. Turkey has lost its investment grade status from all three major ratings agencies, which is likely to impact financing costs, worsen investment and consumer sentiment, and curtail investment and consumption. In an adverse scenario of tightening global liquidity, a new round of lira depreciation would put more strain on corporate balance sheets, depressing private investment and lowering GDP growth. Although banks are not allowed to hold net open currency positions, defaults in the corporate sector could also have an adverse impact on the banking sector through credit risk channels. Despite trending upward, non-performing loans (NPLs) currently are low at 3.2 percent and well-provisioned, providing comfort in case of an additional deterioration in credit quality. That said, banks have limited resources to support further loan growth, since the deposit base grows slowly, uncertainty concerning global liquidity constrains foreign borrowing, and low profitability prospects might entail additional capital injection to prevent erosion in banks’ capital adequacy. Fiscal prudency will be important in reducing internal and external imbalances in the medium term.

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II.3 Poverty and Shared Prosperity 17. Turkey has made significant progress in reducing poverty and boosting shared prosperity. Over 2002 to 2014, the poverty rate fell from 44 percent to 18 percent (under the regional poverty line of US$5/day) and extreme poverty (US$2.50/day) fell even more rapidly, from 13 to 3.1 percent.2 Despite macroeconomic volatility and productivity differences, both moderate and extreme poverty decreased in rural and urban settings. Rural poverty went down from 54 to 33 percent, and urban poverty from 37 to 11 percent in this period. The major driver for poverty reduction was economic growth, as opposed to redistribution, with growth accompanied by more and better income generation opportunities for the low income population. 18. Turkey’s prosperity has been shared, improving the wellbeing of those at the bottom of the distribution. Shared prosperity, measured by the growth in consumption per capita of the poorest 40 percent of the population (B40), has been significant in Turkey. The annualized growth of consumption per capita of the B40 attained 4.3 percent between 2007 and 2012, close to the growth rate in consumption of the entire population. This represents a good performance compared to peer countries – better than OECD peers Mexico and Chile but lower than Russia and Brazil. 19. Despite this progress, wide differences persist between regions. Most regions have seen a reduction in poverty over time, with a general convergence trend occurring: however, the pace of progress has varied depending on the region, with some falling increasingly behind others, resulting in regions that are becoming more heterogeneous over time. The gap in GDP and poverty remains large between the prosperous West and the more challenged Southeast Anatolia. The poorest regions of the south-east now host large numbers of SuTPs and other refugees from the conflicts in neighboring Syria and Iraq. Moreover, the poorest regions have also seen significant under-investment in their abundant natural capital which, through degradation, is eroding potential pathways out of poverty and delaying economic convergence. Several incentive programs were launched to stimulate investment in these regions and the impact is expected to be seen in the near future.

20. In addition, there are large inequalities across socio-economic groups and gender. Though growth has been progressive and prosperity shared, the average income of the richest 10 percent is 13.5 times higher than the average income of the poorest 10 percent of the income distribution. This ratio is among the highest in the OECD. Inequality fell significantly for most of the 2000s, but the trend was reversed after the 2008/09 financial crisis. Moreover, women’s participation in the economy is still severely limited. While it has increased steadily in the past few years, female labor force participation remains just 33 percent, the lowest in the OECD and ECA. Turkey ranks 130th among 145 countries in the Global Gender Gap.

2 Poverty and extreme poverty are measured using the thresholds that the World Bank adopts for countries in the Europe and Central Asia (ECA) region. The poverty line is set at US$5.00 per day, and the extreme poverty line at US$2.50 per day, both in terms of 2005 purchasing power parity (2005 PPP). An individual is considered (extreme) poor if his/her expenditure per capita per day is below the (extreme) poverty line. For Turkey, expenditure data comes from the Household Budget Survey (HBS), collected by Turkey’s National Statistics Office (TUIK).

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Summary of 2016 Country Gender Assessment (Further details in Annex 7) Turkey has substantially narrowed gender gaps in access to productive endowments and thus to economic opportunity. Between 2008 and 2013 maternal mortality rates were cut by half, secondary and tertiary education enrolment rates among women and men moved further towards convergence, and female labor force participation increased steadily. These outcomes have been partly the consequence of improvements to the legal and institutional framework for gender equality. However, despite these commendable advances, women still show systematically poorer outcomes than men across significant dimensions, and Turkey lags behind countries with similar income levels and its neighbors in this regard. Turkey ranks 130th among 145 countries according to the World Economic Forum’s “Global Gender Gap Report 2016”. Aggregate figures mask substantial socioeconomic and regional disparities, with women from vulnerable backgrounds bearing the brunt of the existing gender gaps in access to endowments and opportunity. Turkey has one of the lowest female labor force participation rates among countries with similar income levels, with only 33 percent of Turkish women economically active, compared to 62 percent on average in upper-middle-income countries. Women are also under-represented in entrepreneurship and business ownership and management, a situation related to significant socio-cultural as well as economic barriers to enter and remain in those activities. In particular, the gap in financial inclusion between men and women remains comparatively large. As an example, in 2014, 70 percent of men had formal accounts compared to only 44 percent for women. Women´s agency remains comparatively weak. At 14.9 percent in 2015, the share of female Parliamentary representatives remains well below the ECA average of 25.7 percent. The proportion of women in ministerial positions is even lower, at 4 percent, and compares poorly with the average 21.8 percent registered in ECA for 2015. At the local level the picture does not change much: a mere 4 percent of the representatives in local governing bodies are women.

II.4 Development Challenges

21. A recently-completed Systematic Country Diagnostic (SCD) identifies the key binding constraints to completing Turkey’s transition to a high income country, creating more and better jobs, reducing poverty and boosting shared prosperity sustainably. The analytical framework is structured along four main areas: (a) Solid Foundations, which looks into institutions, markets, economic and social stability; (b) Productive Individuals, which examines people’s access to skills, education, health, and economic opportunities across regions; (c) Dynamic Firms, which assesses firms’ access to financing, innovation, and investment opportunities; and (d) Public Assets and Resources, which analyzes connectivity, infrastructure, and protection of natural resources. . 22. The main challenges in the area of Solid Foundations are related to enhancing the quality of regulatory and accountability institutions; addressing the impact of geopolitical turmoil in the Middle East; developing capital markets; and mitigating macro-fiscal risks. Improving the quality of institutions will increase the ability to attract capital, promote innovation, and safeguard natural resources. A second key bottleneck is the geopolitical turmoil in the Middle East and its spillover impacts on southeast Turkey: a stable and safe environment is crucial to expand services, attract investment, create jobs and incentivize human capital accumulation. Capital markets that need deepening are a third bottleneck, contributing to gaps in formal saving and borrowing patterns, financial literacy and women’s access to financial services, and constraining the ability of small firms to expand and innovate. Fourth, Turkey faces external vulnerabilities stemming from macro-fiscal risks, including particularly a dependence on foreign savings and roll-over needs for its large stock of short-term debt; in this context, increased global risk aversion may expose Turkey to accelerating capital outflows.

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23. In the area of Productive Individuals, the main challenges are low educational achievements, limited female economic participation, and economic and social exclusion in lagging regions. Firms can move up the value chain more effectively when they can hire tertiary education graduates and when those graduates have benefited from good-quality lower levels of education (including preschool) that provide the right cognitive and behavioural foundations. Low female labor force participation constrains economic growth and inclusion, and presents a challenge where Turkey finds more room for improvement vis-a-vis high income countries. Limited supply of affordable care for children and the elderly, and cultural norms reinforcing the patriarchal structure of the family prevailing in some regions have been constraining more active participation of women. Finally, regional economic and social inequalities persist and outcomes in lagging regions remain slow to converge to more advanced regions.

24. In the area of Dynamic Firms, a transition away from low-tech products is underway, but high-tech products currently provide only a small share of overall value-addition, and the share has been declining in recent years. Turkey has a number of well-funded programs to encourage private sector innovation. In 2016, the government adopted new legislation to provide further support, including a new R&D law, an investment climate law and an industrial property law. Nevertheless, there is room for improvement: Turkey’s low performance in technology absorption and innovation is especially visible in R&D and innovation indicators collected by the OECD. This constraint is linked with low educational achievement: poor human capital reduces the scope for innovation. It is also linked to the quality of regulatory and accountability institutions which should be improved to provide better incentives for private investment, innovation and entrepreneurship. Corporate governance as well as competition policy and its enforcement are additional crucial constraints that need to be strengthened for supporting the dynamism of Turkey’s firms. The Government has taken important steps by enacting a series of laws over the past year to incentivize R&D investment, improve the investment climate and align the industrial property framework with international standards. However, strengthening the regulatory and accountability institutions will be key to achieve success in effective implementation of these measures.

25. In the area of Public Assets and Resources, constraints relate to land, water, energy and congestion. Some cities (Istanbul and Kocaeli) are suffering from congestion, thus endangering the benefits of agglomeration which have contributed to growth and poverty reduction in the past. Financing and capital investment planning, consistent with territorial plans, is essential for sustaining urban growth. Connecting people and jobs efficiently at low environmental cost is essential for safeguarding competitiveness and sustainability. While water availability is generally sufficient now, projections for growth in water use may surpass availability by 20303 and this could put a brake on growth in agriculture and industry, while gravely affecting well-being. Improving the efficiency of energy consumption and reducing dependence on imported energy is also critical for competitiveness and sustainable economic growth. Inefficient land management affects city planning and financing of municipal infrastructure, as well as rural well-being.

3 Ministry of Forestry and Water Affairs, 2016: “Assessment of Climate Change Impact on Water Resources”, General Directorate of Water Management, Turkey.

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III. WORLD BANK GROUP PARTNERSHIP FRAMEWORK

III.1. Government’s Program and Medium-term Strategy 26. Turkey’s overarching development goals are outlined in its 10th Development Plan (DP 2014-2018), which was launched in 2014. The 10th DP follows many of the same priorities that were pursued under the 9th DP, underscoring Turkey’s sustained commitment to a broad set of reforms and development programs. Implementation of successive DPs has been commendable. Respective DPs have traditionally formed the basis of the partnership between Turkey and the WBG, with the previous Country Partnership Strategy (CPS) (FY12-16) aligning its objectives with those of the 9th DP (covering 2007-13) and the CPS Progress Report (2014) allowing for alignment with the 10th DP objectives. 27. The DP diagnoses the key challenges that Turkey needs to overcome to escape the “middle income trap” and succeed in becoming a high-income country. It has four High Level Objectives (1) Innovative Production, Stable and High Growth (this targets macroeconomic measures, productivity improvements, energy, logistics, infrastructure and greater innovation and technological capacity); (2) Qualified Individuals and Strong Society (this focuses on social welfare, health, education, public services, and employment); (3) Livable Places and Sustainable Environment (this focuses on reducing regional disparities, promoting sustainable cities and services, and using natural resources responsibly); and (4) International Cooperation for Development (this focuses on sharing Turkey’s positive development experiences with other countries). Under the first three of these objectives is a set of 25 Transformation Programs that outline in more detail the reforms to be pursued and the types of investments to be made. Turkey also produces EU Pre-Accession Economic Reform Programs (ERP) that detail short- and medium-term policy actions and structural reform priorities related to EU accession. The last ERP covering 2017-2019 was issued in January 2017.

28. The Government remains committed to the 10th DP and its Transformation Programs. The reform path and investment priorities for these programs have been detailed and implementation is underway, with various degrees of progress depending on the program. At the same time, the WBG’s SCD shows a prioritization of development challenges that is closely aligned with DP objectives, even though the SCD is a fully independent diagnostic that did not seek alignment (see Figure 1). This confirms that the DP provides a solid foundation on which to build and, therefore, that the focus going forward should be on accelerating implementation.

29. Within the DP framework, the Government carefully considers which development partners it engages for which Transformation Programs and how that engagement is designed and delivered. With a large range of potential partners and access to financing on international markets, Turkey has traditionally engaged partners, including the WBG, in a deliberate manner, both for financing and advisory services. In preparing the DP, the government solicited the WBG’s advice generally, but requests for WBG financial support and investments have been much more selective (as noted in the Completion Learning Review -). This demand-driven approach will continue in Turkey.

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Figure 1: SCD priorities (mapped to prioritized 10th DP transformation programs)

III.2 Lessons from the CPS Completion and Learning Review (CLR) and Independent Evaluation Group (IEG) Evaluations 30. The CLR concluded that WBG engagement was effectively aligned with Turkey’s own development objectives. The alignment with the DP guided the CPS design. This, together with a strong sense of selectivity on the part of the Government with respect to where and how to engage IBRD financing, resulted in a smaller portfolio that was concentrated in the energy and financial sectors, and this contributed to IBRD’s achievement of intended results. Nevertheless, an important conclusion of the CLR is that the size of the Turkish economy relative to IBRD’s program meant there were challenges in demonstrating clear linkages between the WBG program’s contribution and country-level outcomes, and attributing results to WBG interventions will remain difficult. 31. A joint WBG CPS facilitated a coordinated strategy, and joint programs (involving sustained and sequenced interventions) generally achieved better results. In several instances (municipal development, energy, the financial and health sectors), IBRD supported policy reforms upstream (through DPLs) that helped establish stronger foundations, paving the way for IFC/MIGA engagement and private sector investment downstream (Figure 2 shows how this “Cascade”4 approach was achieved for the energy sector). Exploiting its convening and leveraging capacity, IBRD also deployed upstream policy advice and capacity building to enable non-WBG partners to step into a maturing and better-performing sectoral framework and finance investments.

4 The cascade approach implies an increased and more systematic emphasis on upstream reforms at the country and sector level (“mainstream the upstream”) and a renewed determination to focus concessional and public resources where they can have the greatest development impact (“shift the default”).

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Figure 2: The cascade approach in action: sequenced WBG interventions in the power sector enhanced private sector investment and created a competitive market

32. Significant time and efforts are needed to develop new areas of WBG business, particularly for IBRD project financing. IFC’s success in growing its program in Turkey resulted largely from investing in long-term partnerships with companies and municipalities, facilitated by establishing an IFC hub in Istanbul, which is IFC’s largest office outside of Washington, DC, headquarters. IBRD success in energy and the financial sector similarly required long-term engagement to build trust, demonstrate value, establish commitment and build knowledge of working with World Bank procedures. The CLR recommends that the WBG program continue to focus on sectors where such relationships already exist, programming has been successful, and expressed client demand remains high. At the same time, the CLR concludes that broadening the program to address new development priorities should proceed, albeit with an approach that is deliberate because it will involve significant start-up costs, long gestation and uncertainty regarding future success. 33. Advisory Services and Analytics (ASA) is a cornerstone of the WBG’s program in Turkey but going forward it needs to be more responsive to client demand and ownership. To enhance the WBG’s development impact, ASA should engage strategically in sectors where the WBG has a comparative advantage, where policy or institutional reform is actively under consideration, where needed data is available, and where government counterparts with the power to make decisions know the WBG and seek to benefit from its knowledge. The WBG should continue to focus its ASA and consider developing further a Reimbursable Advisory Services (RAS) business where applicable and where there is client demand. In addition, there will remain space for more ASA in new areas that try to initiate a dialogue in a subject matter in line with the national development objectives of Turkey and the twin goals of the WBG.

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III.3. Proposed WBG Country Partnership Framework FY18-21 34. The overall objective of the new CPF is to help Turkey to achieve more sustainable and inclusive growth. Turkey’s strong underlying fundamentals, its robust DP, and its long-standing partnership with the WBG provide a good framework for designing a WBG program that will help Turkey to reduce poverty and enhance shared prosperity. At the same time, geopolitical, security and economic developments are also challenging Turkey’s ability to maintain or consolidate some of its recent gains. In this environment, the WBG needs to adopt a flexible approach that remains focused on key medium- and long-term objectives, mostly in known work-programs, but that also responds to opportunities and makes midcourse corrections in the light of changing circumstances. Notably, lessons learned from the past WBG partnership in Turkey, e.g., in the energy sector, emphasize the need for a selective, persistent and supportive engagement with a view to building trust and demonstrating the WBG’s value in helping Turkey pursue its development goals. 35. Three selectivity filters are used to define the WBG program, both at the strategic level and at the objective level:

36. Selectivity filter 1: Alignment with the 10th DP. The CPF aims to support DP implementation by contributing to positive momentum and discouraging backsliding on articulated reforms. This involves assessing critically where the WBG can best add value to DP implementation, where it can deepen or accelerate positive change, and where it can help shape an appropriate response to specific issues (particularly those involving the WBG’s twin goals). 37. Selectivity filter 2: Focus on SCD priority challenges. The development priorities of the SCD and the DP are strongly aligned; together they guide the choice of CPF areas of intervention. In most cases, the SCD highlights areas where the WBG’s ongoing program is already providing support (e.g., macro-fiscal risks, financial markets, female labor force participation, regional differences, congested cities, energy, land management) and so these areas are obvious choices for continued engagement to consolidate and scale-up progress. That said, the CPF will not address all SCD priority challenges. For example, while terrorist-related insecurity is a major challenge, it is also one that lies beyond the WBG’s mandate and expertise. In addition, while the program necessarily focuses on the governance and regulatory framework in sectors where the WBG is active (i.e., energy, health care, the financial sector, and the business environment more generally), there are areas where it is not fully agreed how such issues can most effectively be addressed by the WBG, or where the issues are too distant from WBG expertise or engagement in Turkey to be an effective and constructive partner. In this context, an opportunistic approach will be adopted to stepping up the program where feasible. Finally, the SCD identifies several issues – namely, declining water availability, inefficient small-holder farming, and low performance in innovation and technology absorption – where the WBG has significant expertise that it could leverage but

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where the future program is not yet clearly elaborated; hence WBG work in these areas will depend on an ability to achieve a common understanding and define an agreed work-program over the CPF period. 38. Selectivity filter 3: WBG comparative advantage: The CPF builds on strengths in the ongoing program where the WBG has a comparative advantage in four distinct ways through: (i) building on the already-fruitful relationships with government and the private sector in areas

where partnerships are mature and which present obvious choices for continued engagement to consolidate and scale up progress. These strong partnerships, together with the fully-joint WBG nature of the CPF, allow for the cascade approach to be deployed effectively. Efforts will a lso continue to encourage the client to make broader use of all WBG instruments while recognizing that agreed areas will likely present opportunities for follow-up lending and consolidate results over a longer term. Capitalizing on its significant and long presence through its office in Istanbul and well established relationships with different stakeholders, IFC will continue to focus on areas where its interventions will contribute to create new markets and help boost Turkey’s private sector-led growth;

(ii) exploration of other opportunities by selectively advocating for new engagement in areas that the SCD highlighted for accelerating poverty reduction and enhancing shared prosperity;

(iii) continued coordination and collaboration with other development partners, notably the EU and other IFIs, to maximize the leverage of WBG support; and

(iv) relationship building at central and municipal levels, with NGOs, academia and civil society to ensure the program has as broad a perspective as possible on country developments and events.

39. The CPF objectives are grouped into three focus areas with nine CPF objectives.

Figure 3: CPF areas of engagement (mapped to SCD priorities)

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40. Gender concerns are central to the program through being embedded in the CPF objectives. The CPF draws on the recent Country Gender Assessment for Turkey (Annex 7) and places gender issues squarely in four of the nine CPF objectives. The CPF objective on women’s increased labor force participation puts Turkey’s gender development challenge at center-stage. Two other CPF objectives, focused on access to finance and on education and health services, directly target interventions on women. In addition, the CPF objective on improving the sustainability and resilience of cities aims to ensure that service delivery in supported cities targets and monitors impact on female beneficiaries. 41. The results framework reflects the flexible approach of the CPF. The program design and expected results are more certain in the early years of the CPF, where client demand is already expressed and where the contribution of the WBG’s program can be more clearly defined. In the outer years of the CPF, the engagement will evolve in response to country circumstances and government requests for support; hence the definition of expected results for this later period will be provided in the PLR. Given the large start-up costs and long timeframe related to new areas of IBRD engagement, flexibility will be manifested in choosing areas of engagement, instruments, and timeframes, both of financing and knowledge work. Focus Area 1: Growth

42. The WBG will continue to support government efforts to address challenges with respect to fiscal management, the financial sector, competitiveness, and private investment. Turkey rebounded quickly from the 2009 global financial crisis, enjoying strong growth until 2015. Prudent macroeconomic and fiscal management has been a cornerstone of Turkey’s good performance, but resilience to external shocks has weakened and vulnerabilities have increased. At the same time, the changes in the political context, geopolitical tensions, rising oil prices and an anticipated rise in US interest rates have dampened investor and consumer confidence and impacted growth prospects. Turkey’s bank-centric financial sector is also under stress, constraining credit to households and firms. To return to a higher growth path and convergence to high-income economies, the Government needs to continue to strengthen fiscal management, deepen institutional reforms to strengthen the rule of law and arm’s-length market regulation, and create the environment for a more effective and inclusive financial sector. Turkish firms need to increase productivity by boosting innovation and technology to add more value and create more and better jobs. Several of the DP’s Transformation Programs target these issues: Productivity Growth, Increasing Domestic Savings, Rationalization of Public Expenditures, Technology Development, and Business and Investment Climate. The SCD also identified these challenges under its pillars of Solid Foundations and Dynamic Firms. These challenges form the basis for the choice of CPF objectives under this first Focus Area: (i) increased fiscal space; (ii) enhanced access to finance to underserved segments; and (iii) enhanced competitiveness and employment in select industries.

CPF Objective 1: Increased Fiscal Space

Results indicators for Objective 1 Share of direct tax revenues in total tax revenues Establishment of a monitoring system for internal controls in public administration

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43. The WBG’s program aims to help the government to preserve fiscal space. This will involve a Public Finance Review (benchmarked against EU standards) that will focus on fiscal management, possibly including areas such as income tax law, risk management, internal audit and the analysis of the distributional impacts of fiscal policy. The policy recommendations from this ASA will underpin a proposed DPL series which will be a core part of the IBRD program and which would begin in FY18. The series will have a crosscutting focus in support of key economic reform priorities and the size and frequency will depend on the country situation, the strength of the reform program and financing needs. Further details on the scope of the reform program supported by the DPL series will only become known during its preparation and will thus be provided in the future CPF Program and Learning Review (PLR).

CPF Objective 2: Enhanced Access to Finance to Underserved Segments

Results indicators for Objective 2 People, micro, small and medium enterprises (MSMEs) and exporters reached with financial services Increase in portfolio size of private pension investors/members

44. Turkey’s growth depends critically on a well-functioning and inclusive financial sector. This requires enhancing access to finance (especially for small and medium enterprises (SMEs), which account for 73.5% of jobs but receive only 24% of bank loans), expanding financial inclusion (40% of the population, mostly women, are unbanked), and deepening and diversifying financial and capital markets (e.g., developing long-term finance, increasing the size of institutional investors, diversifying corporate debt instruments, and expanding liquidity in the secondary market for corporate bonds). The banking sector overcame the recent global financial crisis without any state intervention, and exhibits good financial metrics; capital adequacy ratio at 15.6, non-performing loans at 3.2, return on assets at 1.50 and return on equity at 14.3 percent by the end of 2016. However, capital buffers, liquidity and profitability of the banks have been in a downward trend since the global crisis (although still remaining comfortably above the regulatory thresholds and there has been an increase in profitability recently) while there has been an upward trend in non-performing loans in recent years. The loan to deposit ratio has breached 123 percent, and banks have limited sources to support further loan growth due to: (i) low savings rates significantly limiting banks’ ability to attract new deposit, (ii) the uncertainty on global liquidity limiting foreign borrowing, and (iii) low profitability discouraging shareholders’ increase of capital. Going forward, Turkey needs to address concerns about financial sector risks and potential spillovers to the economy as a whole. The sector is vulnerable due to structural factors (high dependence on cross-border financing, high debt and savings held in foreign currency at short maturities) as well as cyclical factors (growing corporate leverage, rising corporate-bank and (contingent) corporate-sovereign exposures). While a recent IMF-WB financial sector assessment shows that banks’ capital buffers are resilient in the face of a short-term shock, a longer recession could force some to seek additional capital, which may be difficult in a context of possible future global liquidity constraints. 45. The WBG has a long engagement in many aspects of the financial sector and currently IFC, IBRD and MIGA deliver coordinated support through a portfolio of projects, investments and ASA. For the CPF period, this coordinated support will continue with a particular focus on stepping up finance to MSMEs and under-served segments and through robust ASA that will help inform government policy and underpin the DPL series. The ASA program

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will be coordinated to cover critical issues such as financial sector diversification, pensions, capital market development (including WB-IFC support to develop municipal bond markets and to develop the Islamic finance market) and analysis of sector headwinds and how to respond to them. The ASA will inform any potential new financial sector investment operations as well as reforms to be supported through the DPL series (such as reforms on pensions). IBRD will continue to work with the state banks, development banks and other financial institutions to support their countercyclical and market-gap-filling functions, especially through providing long-term financial sources. New financial sector line-of-credit operations may be provided where they extend access to finance (e.g., to MSMEs, to female- or refugee-owned businesses), incentivize investors in key sectors (e.g., energy or technology innovators), and deepen and diversify applicable and client demand-driven instruments (e.g., leasing and factoring, corporate bonds, infrastructure bonds, Islamic finance, and risk-sharing facilities). In this context, a new operation – Long Term Export Finance – was delivered in early FY17 to help address lack of long-term finance: this operation targets support specifically to exporters and MSMEs. During the course of the CPF, should the financial sector show greater vulnerability to down-side risks, the program can be adapted accordingly. 46. Enhanced access to finance is a key IFC priority. IFC will continue to work with financial institutions and intermediaries to expand the availability of funding to MSMEs, with a focus on rural areas, women-owned enterprises, and agribusinesses. It will continue to support banks and non-bank financial institutions (NBFIs) with longer-term funds to help them scale-up support to the underserved and unbanked. To deepen and diversify financial markets and reach underserved segments, IFC aims to leverage diverse instruments and means of funding, including supply chain finance, digital financial services, NBFIs (leasing companies, insurance companies, and pension funds), and distressed asset resolution platforms. IFC will also support alternatives to bank finance by investing in capital market instruments such as covered bonds, diversified payment rights (DPRs), green bonds, municipal bonds, and PPP project bonds (both in euros and lira). In order to address currency risks facing Turkish borrowers, IFC will seek to maximize lira financing and offer currency hedging instruments for real sector clients, PPP investments and municipalities with large external exposures. Recognizing increased risks of capital erosion, IFC may also help banks to strengthen their regulatory capital. Finally, IFC will closely coordinate with MIGA to respond to commercial lenders’ increasing demand for risk guarantees to enhance municipalities’ creditworthiness. 47. MIGA will continue its support to Turkey’s Eximbank. Given the Eximbank’s strategic role, MIGA provided it with guarantees covering the non-honoring of the financial obligation of state-owned enterprises in 2015 and 2016, thus helping to strengthen the financial sector as a whole and to support lending activities to MSMEs and export-oriented companies.

CPF Objective 3: Enhanced Competitiveness and Employment in Selected Industries

Results indicators for Objective 3 Employment supported by IFC clients Employment supported by IFC-supported equity funds

48. To create the jobs needed to employ the rapidly growing labor force and raise it to a higher income level, Turkish businesses need to improve their competitiveness through

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innovating, boosting productivity and moving up the value chain. The WBG program to date has focused its ASA on trade liberalization, competitiveness, the quality of exports, value chain progression in specified industries, the ability to attract foreign direct investment (FDI), and regional investment climates. This program is expected to be strengthened through analyzing past, and shaping future, efforts to improve the business environment, innovation and technology absorption (including through the links between FDI and local firms), subnational competitiveness, and trade in services, as well as to understand the drivers of competitiveness and productivity (as part of the upcoming Country Economic Memorandum (CEM)). Technical assistance (TA) is also planned to improve the regulatory environment and increase job opportunities in communities affected by SuTPs. TA on competitiveness, resource efficiency and cleaner production with a focus on Organized Industrial Zones (OIZs) will be delivered. Taken together, this ASA serves as a centerpiece of WBG dialogue in Turkey, feeding into the design of reforms, underpinning any relevant reforms that may be captured in the future DPL series, and helping target potential high-growth or innovative SMEs (which in turn could be targeted through the financial sector support pursued under CPF Objective 2 above). This stronger framework is expected to lead to enhanced private sector investment which IFC and MIGA could support. In later stages of the CPF period, IBRD may build on the ASA to step up lending in support of innovation, technology absorption, cleaner production and an improved business environment, should the client demand. 49. Boosting employment growth through support to entrepreneurship and innovation is IFC’s priority under this objective. Through financial intermediaries and direct engagements with real sector companies, IFC will help strengthen Turkish firms’ competitiveness (with new technology, innovation and improved governance) and support their regional and international expansion. IFC will continue investing in equity funds that promote local entrepreneurship, competitiveness and innovation, while also fostering employment in high-growth and high-value-added sectors (e.g., manufacturing, telecommunications, technology, agribusiness). It will continue with its Global Trade Finance program mitigating risks through guarantees to banks that deliver trade financing. IFC will also provide advisory services focused on corporate governance, and skills development that enable better linkages of SMEs with high growth value chains. IFC AS will contribute to improved competitiveness, productivity, and sustainability of Turkish manufacturers through (i) a set of greener manufacturing interventions in OIZs including resource efficiency, cleaner production, industrial symbioses, and green infrastructure, (ii) building business cases (cost-benefit analysis) at firm and OIZ levels to enable better detection of bankable projects, and (iii) helping develop a comprehensive national framework on Green OIZs for Turkey. Focus Area 2: Inclusion

50. WBG support in this area aims to consolidate Turkey’s success towards achieving the twin goals while also supporting efforts to reach those who are left behind. This implies realizing the demographic dividend by creating good jobs for increasing numbers of workers, which involves better integration of women, youth and SuTPs into the labor force, reducing persistent gender inequalities (particularly in access to economic opportunities), reducing regional labor-market disparities, and raising learning levels (including at the youngest ages, when development of the cognitive and behavioral skills required in the workplace is optimal). The WBG’s program to date in this focus area had a concentration on ASA which informs government-financed programming (and DPLs) and which the government wishes to remain at the core of the

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engagement because of its role in providing knowledge for many of the reforms undertaken in this area. Broad issues of equity, vulnerability and regional disparities – that cut across the whole of the WBG program and not just this Focus Area – will continue to be the focus of in-depth ASA, possibly through a future CEM or other deep-dive diagnostic. An important evolution of the WBG program in this area has been the introduction in FY17 of new investment operations financed by the EU’s Facility for Refugees in Turkey (FRiT), which is the framework for the EU’s pledged assistance to Turkey for continuing to support hosting SuTPs; the FRiT funding has allowed the WBG to complement its ASA with more in-depth support through investment projects while strengthening cooperation between WBG and the EU.

CPF Objective 4: Increased Effectiveness of Social Assistance

Results indicators for Objective 4 Increased impact of social assistance on the poverty gap Increased availability of monetary and non-monetary indicators of welfare and inclusion.

51. This CPF objective has the goal of improving efficiency and effectiveness in social assistance and strengthening the evidence-base for policies aiming to narrow gaps between regions and ensure greater inclusion of vulnerable groups. The ASA program will continue to produce and disseminate monetary and non-monetary indicators of welfare and inclusion, including equality of opportunity and multi-dimensional poverty. The WBG will continue its support to the Poverty Reduction Strategy and Social Assistance Reform initiative of the Ministry of Family and Social Policies (MoFSP) for making the social assistance system more effective and efficient, especially towards vulnerable groups such as the disabled. The WBG’s Europe and Central Asia regional agenda on support to the Roma people will encompass Turkey through the framework of providing support to the recently-adopted policy of the Strategy for Roma in Turkey (2016-2021).

CPF Objective 5: Increased Labor Force Participation of Women & Vulnerable Groups

Results indicators for Objective 5 Increased female labor force participation Increased youth participation in the labor force Increased SuTP employability in the labor force (gender disaggregated) Direct employment supported by IFC manufacturing clients in south east regions

52. WBG support under this objective aims to bring more people – especially women and youth – into the formal labor market. This is critical for Turkey to reap the benefits of its demographic window and so to grow rich before it grows old. The importance of this challenge is recognized and reforms in the past have focused on different interventions. The Bank intends to continue its role of providing a comprehensive package of ASA that analyses the labor market’s supply and demand constraints (including jobs diagnostics, evaluations of labor policies such as minimum wage, pre-school and child-care policies, and social norm constraints) as well as assessments of individuals who are not in school, education, employment or training (NEET). The aim of these ASAs is to propose reform recommendations (e.g., on flexible work arrangements, tax incentives for pre-schools, maternity/paternity leave, and active labor market programs (ALMPs) incentivizing training and jobs for women and youth) which can guide Government

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decision-making and could in turn be supported through DPLs. As part of the support to jobseekers, the WB will continue supporting the public employment services (ISKUR) institution to strengthen its capacity as well as its effectiveness helping jobseekers. 53. This objective seeks to improve the employability of other vulnerable groups. The influx of SuTPs has created new challenges among the labor force, particularly for those in the south-east which is hosting the concentration of SuTPs. This is exacerbating an already challenging environment for the people in southeast Turkey who have lower incomes, make less use of public services, and have less access to finance (for farmers, agribusinesses, and SMEs, particularly for women-owned enterprises). The WBG will help to address these issues through policy advice (supported by EU and SIDA trust funds) and project interventions. A FRiT-funded labor market inclusion project (€50 million, FY17) targets increased SuTP participation in the labor market through providing access to ALMPs. This is complemented by FRiT funding of €5 million for IBRD advisory work to support facilitation of employment and entrepreneurship opportunities in SuTP-affected regions. Further IBRD and/or EU investments will be considered where there is client demand and a link to the twin goals. The WBG is also providing support on migration issues more broadly as part of its global knowledge role in this subject. 54. IFC aims to invest in projects that promote greater equity in the access of vulnerable and underserved groups to services, jobs, and finance. IFC will scale up its SME financing targeted to women entrepreneurs and farmers and will leverage NBFIs to broaden access to finance of these groups. It will also invest in key manufacturing companies with presence in the south-east of Turkey with a view to support employment in the lagging regions. Aiming to help underserved populations access better urban services, IFC will pursue investment opportunities in commercially-viable urban infrastructure projects in second-tier, less developed regions. In addition, it will offer advisory services to Turkish corporates to help them develop gender programs that support women’s employment and entrepreneurship.

CPF Objective 6: Strengthened performance of the education and health sectors

Results indicators for Objective 6 Increased percentage of formal school enrollment of SuTP children between the ages of 6-18 Improvement of primary and secondary prevention of non-communicable diseases Number of patients served through IFC health sector clients

55. The focus in the health sector is on promoting healthy lifestyles. Turkey has already made enormous progress in reducing mortality and increasing life expectancy; now the challenge with the greatest potential impact is promoting healthy lifestyles through attacking behavioral risks. An ongoing IBRD-financed health project aims to enhance the capacity of the Ministry of Health (MoH) for evidence-based policy making, increase hospital management capacity, and improve the prevention of selected non-communicable diseases (NCDs). The project mainly aims to raise awareness about NCD risk factors (such as smoking, obesity and physical inactivity) and to promote behavior change; among other things, Turkey will be included in a global obesity study and its experience in tobacco control will be documented. In addition, IBRD will continue to support the second phase of the health transformation program through activities focusing on providing appropriate high-quality care by results-based interventions and payment reforms. This includes documenting the successes and challenges faced, and the political economy of the

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transformation. IFC and MIGA will continue to support Turkey’s health sector through investments in specialized health service providers, and through financial innovation to help create alternative capital market solutions for health infrastructure financing. For example, IFC financed Turkey’s first PPP bond issuance under Elazig health PPP project, which was structured and supported by MIGA and EBRD through credit-enhancement products. IFC will invest in specialized services (e.g., bio-pharmaceuticals manufacturing), where it can play a role in bringing in strategic investors and building partnerships, which it can then support with financing. MIGA will remain open to support investments into Turkey’s health PPP program by providing political risk insurance guarantees for the construction and operation of new health facilities. Similarly to IFC, financial innovation in Turkey’s health sector will remain a focus area to leverage the use of MIGA’s credit enhancement products, as utilized on the recently closed Elazig bond transaction. 56. In the education sector, the CPF will step up ASA in response to the recent fall in PISA and TIMSS scores for Turkey. This ASA will support primary education and teacher training reform efforts, help inform and influence policies affecting the quality of education and the monitoring of education services. Given the time required to impact learning, results are likely to be modest and achieved beyond the CPF period. There are discussions underway with the Ministry of National Education (MONE) to support areas including life-long learning and distance education approaches where the WBG has global experience. IBRD will implement a FRiT-financed education project (€150 million) which aims to expand education service delivery and targets resources where SuTPs as well as host communities face capacity constraints. IBRD is also providing technical support to derive a strategy to integrate immigrant children into the education and vocational system. In addition, a new EU Instrument for Pre-Accession (IPA) -funded project targeting youth who are out of school is being prepared in areas where drop-out rates of Turkish youth is high and where SuTP youth are at risk of never entering school. Lastly, IFC will look for opportunities to invest in education service clients to promote private vocational training. Focus Area 3: Sustainability 57. The WBG’s program will help address the SCD-highlighted challenge of reorienting growth towards a more green, resilient and sustainable pattern. Economic growth and urbanization in Turkey are not yet decoupled from rising energy use, pollution and greenhouse-gas (GHG) emissions, so there is much potential for greater resource efficiency and pollution abatement. The challenges are to provide connectivity and agglomeration benefits in an environmentally, socially and financially sustainable way (particularly as regards reducing energy intensity and avoiding water scarcity). The program will build on the well-established IBRD and IFC collaboration in energy and urban/municipal services, where 75 percent of IBRD’s investment program and a sizeable proportion of IFC’s engagements are already concentrated: this provides an excellent opportunity for operationalizing the cascade approach to financing. The CPF proposes both to build on the on-going program and to encourage its evolution towards issues critical to Turkey’s future growth. It is consistent with the 10th DP Transformation Programs focused on increased energy efficiency and generation from local resources, urban redevelopment, improved access to potable water and wastewater services, effective use of water in agriculture, and sustainability in the use of natural capital. Within this focus area, the CPF objectives include (i) improved reliability of energy supply and generation of green energy; (ii) improved sustainability and resilience of cities; and (iii) increased sustainability of infrastructure assets and natural capital.

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CPF Objective 7: Improved reliability of energy supply and generation of green energy

Results indicators for Objective 7 Renewable electricity generation as percentage of total generation Value of loans provided by IFC clients to renewable projects Total power generation and distribution clients reached Increased capacity of gas storage Gas imports through Trans-Anatolian Pipeline (TANAP)

58. The WBG’s current program is heavily concentrated in the energy sector, with a cascade approach underway whereby IBRD policy advice and TA are paving the way for stepped-up private sector engagement supported by IFC and MIGA. The program aims to help Turkey to reduce its energy dependence (it imports 92 percent of its oil and 98 percent of its gas), support the energy reform agenda, diversify its energy generation (inter alia to include more renewables), and upgrade regional transmission and distribution networks. Harmonization with EU standards is also a key objective. ASA – supported by EU/IPA, ESMAP and CTF grants on rooftop solar programs, generation planning, gas sector restructuring, smart grid applications and distribution companies – will continue to deliver policy advice and just-in-time analysis of sector issues under government debate. IBRD, IFC, and MIGA will work closely together to help Turkey improve its PPP policy framework to stimulate further private sector energy investments, strengthen the energy regulatory environment, and increase long-term financing for renewable energy5. This ASA will also feed into the design of future DPLs, which could stimulate investments in renewable energy generation and transmission and the related climate change benefits. 59. The IBRD investment portfolio will continue to focus on improving Turkey’s energy security and mix, including by increasing the use of renewable resources (wind, solar, and geo-thermal). The CPF program encompasses: (i) increasing the percentage of renewable electricity generation and improving its integration into the grid through the ongoing Renewable Energy Integration, the Private Sector Renewable Energy and Energy Efficiency, the Geothermal Development and the EU/IPA Energy Sector TA Projects; (ii) enhancing energy security infrastructure and gas storage capacity through the on-going Gas Sector Development Project and the proposed Gas Storage Expansion Project; (iii) developing energy trading and restructuring of BOTAŞ through the EU/IPA Energy Sector TA Project; (iv) securing and diversifying Turkey’s gas supply, including gas imports from Azerbaijan through the TANAP Project – where $800 million in IBRD loans to Turkey’s BOTAŞ and Azerbaijan’s Southern Gas Corridor (SGC) leveraged $600 million from the Asian Infrastructure Investment Bank (AIIB) and the expectation of up to $1.2 billion in guarantees from MIGA; (iv) development of interconnections to ensure cross-border electricity and natural gas trading; and (vi) other areas to support sustainable energy sector development as agreed between the Government and the WBG, including increasing the grid capacity and smart grid technologies, distribution and transmission networks and systems. Given the comparative advantage of IBRD in the sector, further energy investments may follow, on client demand, observing the WBG’s cascade approach on leveraging private financing.

5 Support for the regulatory environment for renewable energy, for example, is being provided under the ongoing EU-IPA Energy Sector TA and the Rooftop Solar PV Assessment. Further work to improve the investment climate for the energy sector will be coordinated with the PPP RAS.

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60. IFC aims to support Turkey’s energy security, and help rebalance its energy mix through selective and strategic engagements in the sector. IFC will focus on investments with high development impact that cannot be achieved through alternative investments as well as projects where IFC can play a mobilization role, particularly in the form of FDIs. Now that the electricity distribution network is fully privatized, IFC will focus on providing post-privatization financial support to strengthen the financial structure of distribution companies and to attract long-term financing to upgrade the distribution network, which has been under-invested during public ownership. IFC aims to help distribution companies address currency mismatches by offering suitable financing schemes to hedge their foreign exchange risks. IFC will seek investment opportunities in new technologies (e.g. smart meters) to help address some of the problems in the power distribution sector. In addition, IFC will look for opportunities to address shortages in gas supply through investments in gas infrastructure including import terminals and storage as well as gas distribution. MIGA remains open to supporting FDI in the renewable space through the provision of political risk insurance guarantees.

CPF Objective 8: Improved sustainability and resilience of cities

Results indicators for Objective 8 Improved service delivery and expanded access to digital land registry and cadastre information Number of additional people benefiting from improved urban infrastructure and municipal services Increased resilience of cities through increased number of disaster resilient public buildings and improved disaster preparedness.

61. Given the important role that urbanization has played in Turkey’s development success, the WBG program will continue to focus on helping cities to become more sustainable and resilient. High population growth in some Turkish cities has resulted in congestion and environmental degradation that can impact connectivity and agglomeration benefits. Turkey is responding to this challenge through a “Smart Cities” approach that focuses on cities’ needs to plan, build and provide services in more environmentally and socially sustainable ways. The WBG is providing support through the Sustainable Cities program that is putting in place a cascade approach through an investment coordination platform between IBRD and IFC. Under the Sustainable Cities program, the WBG aims to maximize financing through sustaining constructive dialogue with the central government on policy and regulatory changes that would help modernize the existing municipal financing and investment framework. This will involve supporting cities to become more credit worthy to access concessional finance and focus public funding where it is most needed. Policy advice, technical assistance and capacity building to cities and municipalities on issues of urban transformation (including housing) could pave the way for stepped-up private investment supported by IFC and MIGA. In particular, IBRD’s cooperation with Illerbank to support to municipalities in improving urban planning, infrastructure and capital investment planning, and efforts to strengthen municipal financial capacity (including creditworthiness) should enable the WBG to expand its support to second-tier cities, including in frontier and underserved regions, with the ultimate cascade goal of enabling them to secure financing directly from the capital markets for their crucial infrastructure needs. Expanding the availability of municipal finance options (including the bond market and FX hedging) and an effective municipal PPP framework are areas that require continuing WBG collaboration. Finally, support on low-carbon urban management, and related investment identification in major urban centers will be pursued, aiming to share global best practice.

23

62. IBRD’s lending portfolio will continue to target strategic investments that build on known areas of comparative advantage. The Sustainable Cities program, approved in late 2016, is envisaged as a series of projects, with new projects coming into the program based on the readiness of specific cities and their investment plans, and it will include EU-funded TA in planning and policy analysis to help cities address environmental, social and financial sustainability challenges. The design of the new projects will benefit from ASA recently carried out or underway: these include (i) a recent ASA on sustainable water supply and sanitation service delivery in urban areas, which analyzed and quantified additional efforts needed to reach compliance with EU standards, as well as opportunities for operations performance improvement for climate-smart approaches (water loss reduction, optimized wastewater sludge management and treated wastewater reuse); (ii) a study on housing the bottom 40 percent; (iii) improving municipal services such as urban transport through the EU Transport IPA and Sustainable Cities IPA; and (iv) Global Facility for Disaster Reduction and Recovery’s (GFDRR) -financed TA on disaster risk management and resilience of cities. An ongoing Land Registry and Cadastre Modernization project also contributes to improving local government financing through improving land valuation and enhancing service delivery to citizens through increased access to property market information. For improving the resilience of cities, the program proposes an investment project to strengthen critical public facilities for earthquake resistance and better enforcement of building codes and land use plans. 63. Focus areas for IFC and MIGA include direct engagement with municipalities to strengthen capacity for financial management, and for infrastructure project design, preparation and implementation. IFC’s Cities’ Platform includes long-term and municipal finance, tailored to creditworthiness, to support urban transportation, street lighting, waste-to-power, solid waste, waste water, and water management projects. IFC can leverage a wide range of products including long-term loans (both in euros and lira), municipal bonds, and hedging tools to help municipalities manage their foreign-exchange loans. Developing a municipal bond market, introducing foreign-exchange hedging instruments to municipalities, and improving the municipal PPP framework are areas that require continuing WBG collaboration to open up new opportunities at the municipal level. Building on successes in Istanbul and Izmir, IFC aims to help other fast-growing credit-worthy cities create a pipeline of bankable projects, providing direct senior loans (in euros or lira) or using a portfolio approach by channeling its funds to cities through local banks.

CPF Objective 9: Increased Sustainability of Infrastructure Assets and Natural Capital

Results indicators for Objective 9 Cumulative energy savings achieved through WBG-financed energy sector projects Annual greenhouse gas (GHG) emissions reductions

64. Increasing efficiency in the use of public assets and natural capital is highlighted in the SCD as a key development challenge, with positive impacts on climate change. The SCD found that improving the efficiency of energy consumption is critical for Turkey’s competitiveness and sustainable economic growth (while also supporting the energy security agenda under CPF Objective 7). The WBG’s program in energy efficiency is well developed, with ongoing IBRD investments through the SME Energy Efficiency project and the Private Sector Renewable Energy and Energy Efficiency project as well as a broad program of IFC financing for sustainable and

24

renewable energy. These projects will continue to be implemented with follow-on or scaled-up projects based on client demand. In addition, IBRD is supporting the development of carbon pricing instruments and markets through a grant-funded Partnership for Market Readiness (PMR) project. IBRD is seeking to develop sustainable financing mechanisms and implementation models to support energy efficiency in public buildings and may consider additional projects to develop new markets in the areas of energy efficiency financing. The ASA program includes a Forestry Note and a Socio-Economic Survey of Forest Communities (both recently completed) and future stepped-up engagement in this area could be envisaged. In collaboration with the Ministry of Development, a study is underway on how to finance Sustainable Development Goal (SDG) #12 which focuses on sustainable production and consumption. Finally, IBRD’s new social and environmental framework will serve as a solid ground for furthering dialogue and building in-country capacity on social and environmental social sustainability policies and analytical work. 65. IFC will continue to support private sector investments in manufacturing, SMEs, municipal and transport infrastructure, with a view to improving energy efficiency and reducing GHG emissions. IFC will provide long-term finance to intermediaries with portfolios focused on energy efficiency areas. It will seek direct engagements at the industrial level to help reduce energy intensity and pollution with a set of products such as loans, equity and green bonds, as well as to mobilize funds from other financial partners for these purposes. IFC will work with financial institutions to expand finance for green buildings through innovative instruments such as green bonds and mortgage-covered bonds. At the municipal level, it will seek opportunities to support energy-efficient public transport, municipal buildings, waste management and waste-to-power, and street lighting projects. In addition to financing, IFC will provide advisory support and training to key institutions and corporates to help introduce new energy efficiency practices to Turkey’s residential housing and industrial sectors. 66. MIGA remains open to expanding its support to municipal infrastructure with a view to improving energy efficiency and reducing overall emission levels. In this regard, MIGA could provide credit guarantees for major municipal infrastructure projects, similar to previous assistance to Istanbul and Izmir. 67. The WBG will also advocate a stepped-up program in areas identified in the SCD as important, such as the sustainable use of water and forest resources. This would support some of the most vulnerable groups in Turkey, namely, smallholder farmers and forest communities. In the water sector, a possible IBRD irrigation project is under discussion which could include components on modernizing the sector, increasing water productivity in agriculture, strengthening the capacity of water users associations, and exploring the options of private sector participation in irrigation. In the forestry sector, recommendations from the recent Forest Policy Note have led to discussions of a potential project that would focus on accelerating forest-sector SME growth to improve the forest value chain, with the goal of spurring regional convergence, reducing out-migration, and producing a sustainable supply of quality forest products for the construction and energy markets. Engagement in agriculture is also possible: e.g., analytic work on productivity and competitiveness (proposed under CPF Objective 3) could look at improving the efficiency of agri-food value chains and commercialization. Finally, the WBG is providing EU-funded TA on transport issues, such as a multimodal transport strategy, urban transport, and priority railway investments, and some of this work could lead to financing opportunities during the CPF period.

25

III.4 Implementing the FY18-21 Country Partnership Framework 68. The CPF will feature a mix of instruments, drawing on the strengths of IBRD, IFC and MIGA. IBRD financing for FY17-21 is estimated at $5-7.5 billion, although actual lending volumes will depend on client demand, choice of instrument, overall performance during the CPF, IBRD’s financial capacity, and demand from other IBRD borrowing countries. IFC’s own-account investment program is expected to be $600-800 million p.a., reflecting IFC’s current level of exposure (2nd largest exposure globally), the elevated economic and political risks in Turkey, and increased global risk aversion. IFC’s program can be further increased depending on Turkey’s progress with structural reforms as well as improvements in the economic fundamentals and political risks during CPF implementation. IFC will continue to provide a wide range of innovative and high-impact products and financial instruments with a focus on high-growth and high value-added investments, and areas such as PPP project bonds and municipal PPP projects. 69. The IBRD lending program proposes one DPL series, consolidates financing in on-going and agreed areas, and adopts a flexible approach for the choice of other investment operations (Table 2). The program will encompass one multi-sectoral DPL series, with the specific support to CPF objectives to be agreed during its design. The Government continues to signal the importance of the DPL in its program with the WBG, both for its support to a multi-dimensional reform plan and for the signal it gives to partners and international markets. As detailed in the CLR, Turkey has had good success with using DPLs as a binding instrument that can bring together different aspects of the program, that allows for a deeper engagement and follow-through on ASA recommendations, and that can remain flexible to respond to a changing country context. The proposed lending for FY18 provides support in existing and agreed areas, consolidating gains made in the previous CPS period. For the other years of this CPF (FY19-21), the program is flexible to allow for the partnership to evolve in areas where dialogue has been on-going but where the type of engagement still needs to be agreed. This flexibility means the program can adapt to the evolving country context, as well as align with the objectives of the future 11th Development Plan (for the post-2018 period) and with implementation on the ground.

Table 2: FY17-21 Indicative Financing (by source)

GROWTH INCLUSION SUSTAINABILITY

DPL (IBRD, FY18)

Long Term Finance (IBRD, FY17)

Education (EU FRiT, FY17) Geothermal Development (IBRD and CTF, FY17)

Financial Sector (IBRD, FY19)

Labor Market Integration (EU FRiT, FY17) Trans-Anatolian Pipeline (IBRD, FY17)

Innovation (IBRD, FY20) SuTPs Employment Support and Entrepreneurship (EU FRIT, FY18)

Sustainable Cities Series of Projects (IBRD and IPA, FY17; FY18 and FY20)

Education: Youth-at-Risk (EU/ IPA, FY18) Gas Storage Expansion (IBRD, FY18)

Social Inclusion (IBRD, FY19) Disaster Risk Mgmt. (IBRD, FY19)

Education Reform (IBRD, FY20) Irrigation (IBRD, FY19)

Energy Efficiency (IBRD, FY19)

26

70. The ASA program will strategically respond to clear client demand and ownership in areas that underpin Turkey’s Development Plans and WBG financing engagements (Table 3). The overall aim is to deliver knowledge, informed by the WBG’s international experience and expertise, in areas where there is demand from decision-makers, active consideration of policy or institutional reform options, and sufficient engagement with government counterparts to guide the work and ensure ownership of its results. Where strategically relevant and needed, ASA will inform the DP, while also contributing knowledge pertinent to well-designed and -targeted IBRD lending, including particularly DPLs. Given that many of the development challenges facing Turkey are cross-cutting (such as equity, gender equality, inclusion, productivity, greening the growth model, etc.), diagnostics will typically be applicable to several CPF Focus Areas. Further work will be undertaken to develop the RAS program where applicable and where there is client demand. Finally, the WBG will pursue important global issues that are pertinent to Turkey, such as refugee-related issues, non-communicable diseases, and financing for climate projects.

Table 3: ASA for World Bank GROWTH INCLUSION SUSTAINABILITY

Country Economic Memorandum 2017 – Productivity and Competitiveness

Country Economic Memorandum 2018 – Equity

Poverty Analysis (including Regional Disparities)

Financial Sector Programmatic ASA including WBG-IMF Financial Sector Assessment (FSAP), pensions, capital markets

Education: (1) analysis of PISA and TIMS results; (2) teacher training and primary education reform support; (3) migration management

Energy Programmatic ASA, including EU-financed IPA

Governance Programmatic TA Poverty and equity lens on labor, education and nutrition

Sustainable Cities TA

Business Environment and Innovation ASA and TA

Labor markets and skills: (1) quality of jobs, minimum wage and informality TA; (2) study on Not in Education Employment or Training (NEET); (3) Socio-Emotional Skills

Support to SDG Implementation

Justice Sector TA Syrian Refugee Crisis Response: harmonization strategy, knowledge generation, impact studies

Disaster Risk Management TA

Tax Policy Advice Poverty Reduction Strategy and Social Assistance Reform TA

Forest Sector Review

Distributional Impacts of Fiscal Policy

Health; (1) expenditure projection actuarial model TA; (2) health reform and assessment of the utilization of primary care; (3) obesity study

Sustainable, Efficient and Safe Transport

Disability and Aging Study Rooftop Solar PV Assessment

PPP Advisory and PPP RAS

Housing Study

27

71. Citizen Engagement (CE): The CPF proposes to step up and mainstream CE activities into the program, particularly across the WBG’s investment lending portfolio. To date, several IBRD-supported operations in Turkey have relied on CE mechanisms such as consultations and grievance redress for safeguards compliance, and an increasing number have utilized beneficiary feedback surveys. For instance, as part of its objective to improve customer services in land registry and cadastre offices, the Turkey Land Registration and Cadastre Modernization Project has used beneficiary feedback surveys to monitor increases in customer satisfaction with cadastre services as well as the decline in the number of cadastre disputes pending in courts. In the upcoming CPF, CE mechanisms will be strengthened in all IPFs to achieve the 100 percent beneficiary feedback target. Technical assistance and capacity building will be provided to project teams in all sectors to identify entry points and relevant CE mechanisms. 72. The World Bank’s approach towards mainstreaming CE is aligned with the priorities of the DP and Turkey’s steps towards achieving Sustainable Development Goal 166. The DP has prioritized strengthening the non-government sector by creating a convenient atmosphere for a strong, diverse, pluralist, sustainable civil society and opportunities for all segments of society to engage in social and economic development processes. The ASA portfolio will increase its focus on strengthening CE through documenting and disseminating Turkey’s good practices on CE and participatory public administration reforms. Engagement on CE will be deepened through the ongoing dialogue on open and accountable institutions to improve quality of service delivery and through further dialogue with selected ministries/departments, such as health, land administration, local government, and migration management, through greater focus on: (i) strengthening grievance redress systems; (ii) removing barriers to public participation, especially of women, on social and environmental issues; and (iii) engaging community institutions in disaster risk reduction and management. A Citizen Engagement Roadmap is detailed in Annex 8.

Donor Coordination and Resource Mobilization The WBG program in Turkey is strongly positioned to continue to deepen cooperation with development partners and to utilize multiple channels to meet the WBG’s strategic goal of greater resource mobilization and leveraging of more financing for countries. Turkey already benefits from the strong example shown of the “cascade” approach in the energy sector of mobilizing private sector financing. In the same sector, IBRD led an exemplary IFI effort in support of securing and diversifying Turkey’s gas supply with gas imports from Azerbaijan through the Trans-Anatolian Pipeline (TANAP) Project, where $800 million in IBRD loans to Turkey and Azerbaijan leveraged $600 million from the Asian Infrastructure Investment Bank (AIIB), and the expectation of up to $1.2 billion in loan guarantees from MIGA. This effort helped raise part of the $2 billion in private sector financing for the project. The WBG’s due diligence and cooperation with other IFIs is aimed at leveraging further financing for this project from EBRD and EIB. These examples provide good practice for continuing donor coordination, leveraging of partners and broadening the cascade approach in other projects and sectors.

While the Turkey EU Accession process is progressing slowly, the EU “anchor” on the economic agenda continues to be important and the EU remains a strong partner on socio-economic issues. This means that ensuring a good partnership between the WBG and the EU is an important aspect of the CPF. The EU’s Facility for Refugees in Turkey (FRiT) is a framework agreement between the EU and Turkey for the support that the EU has committed to Turkey to continue to host SuTPs and to deter their illegal crossing into the EU. As part of the FRiT, the WBG is administering three different operations in the areas of education, labor markets and entrepreneurship.

6 SDG16 - Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels

28

IV. MANAGING RISKS TO THE CPF PROGRAM

73. The overall risk to achieving the CPF objectives is moderate. This reflects the current complicated political and governance context, both domestically and regionally, as well as increased risks from macroeconomic vulnerabilities, including in the financial sector. Given the dynamic nature of the situation in Turkey, the risk assessment will be reviewed as part of the PLR. As an overall risk-mitigating measure, the CPF puts strong emphasis on a flexible program that can be adapted to respond to the country context and that regularly assesses implementation progress. Risks to the CPF have been assessed using the Standardized Operations Risk-rating Tool (SORT), as summarized in the table below. Risk categories Rating

1. Political and governance Substantial 2. Macroeconomic Substantial 3. Sector strategies and policies Low 4. Technical design of project or program Moderate 5. Institutional capacity for implementation and sustainability Moderate 6. Fiduciary Low 7. Environment and social Moderate 8. Stakeholders Moderate

Overall Moderate 74. Turkey is facing a unique set of political and governance risks. Events within Turkey since the failed coup attempt of July 2016 have affected the domestic landscape and the planned constitutional amendments will change the system of government by introducing a presidential system. Government efforts to amend the constitution (through parliament and a referendum), and manage geopolitical tensions and their implications for the country, particularly in the east and south-east of Turkey, are absorbing much of the time and attention of senior government officials, with the risk that needed reforms may lag. Risk Mitigation: The WBG, together with other development and private sector partners, will continue to monitor these risks closely and modify support within the CPF to help address economic issues that arise out of this context, where its mandate and expertise warrant it. This is where the flexible nature of the CPF will come into play because the program can be adapted to respond accordingly, specifically through modifying how and where the WBG will deliver its financing. The proposed DPL series can be calibrated to the circumstances, both in volume and in policy content, with a view to securing a prudent macroeconomic environment and context-appropriate social and structural reforms. If the environment is considered not conducive for DPL support, the program can be more narrowly targeted to consolidating or expanding gains in mature areas of engagement (energy, financial sector, cities), as well as analyzing or administering investments that help vulnerable populations to reach the twin goals (as is being done with Syrians under temporary protection, with EU funding). 75. The difficult geo-political environment of the sub-region also poses challenges. Regional risks have become more complex, with difficulties in the euro zone as well as challenging debates about Turkey’s EU accession, continued conflict in Syria and spill-over terrorism risks, and dynamic Turkish relations with both Russia and the United States. These challenges may risk

29

negatively impacting political, economic and social issues. Adverse developments may also discourage private investment further. Risk Mitigation: Should these risks materialize, the WBG would moderate support in an appropriate manner. This could mean delaying the planned DPL, changing its content, and adjusting its volume, while also targeting project financing on investments that are responsive to the risks at hand. Capital outflows, whether resulting from adverse domestic conditions or attractive external ones that entice investment away from Turkey, could prompt greater government interest in WBG and IFI financing to compensate for poorer terms on international markets, and also possibly enable a productive dialogue in newly important topics. In all cases, enhanced WBG support for reforms aiming to improve the business environment and enhance resilience and inclusion will remain important, and a backbone of WBG work in Turkey. 76. Domestic and international challenges still pose risks to the macroeconomic outlook. In 2016, Turkey experienced stalling growth low FDI inflows (which were already low for a country of Turkey’s importance and potential), continued high current account deficits, and down-grades of its international credit ratings. Rising oil prices and U.S. interest rates, and depressed tourism revenues are likely to maintain pressure on the trade and current accounts. However, higher growth in the EU (Turkey’s main trading partner) and the depreciation of the lira will likely support trade and current accounts. Sub-regional crises (in Syria and Iraq) are making Turkey less attractive to investors, and the costs associated with hosting some three million SuTPs are adding to fiscal stress. Despite some monetary tightening, inflation remains above target. Fiscal policy, until recently a cornerstone of Turkey’s economic success is on an expansionary path with a recently introduced fiscal stimulus package and a rising contingent liability portfolio. Risk Mitigation: The WBG – together with the IMF – will monitor developments closely. In addition, the WBG will step-up its TA and advisory program to bolster macroeconomic resilience and help the government to respond to emerging vulnerabilities. In the short- to medium-term, Turkey’s main challenge is to avoid a recession, which could trigger deleveraging, and to make good use of external financing conditions to rebuild buffers, reduce inflation and address external balances. The DPL series will be carefully deployed here if necessary and appropriate. 77. There are increasing concerns about the vulnerability of the financial sector and its potential spillover effects on the economy as a whole. Turkey’s financial sector is experiencing headwinds with increasing stability pressures due to the slowdown in the economy, exchange rate volatility and the dynamic political context. The sector is particularly vulnerable due to structural and cyclical factors. Structural factors include the high proportion of savings and debt held in foreign currency and at short maturities, the dependence on cross-border financing, and the convergence in major banks’ business models. Cyclical factors include growing corporate leverage, rising corporate-bank and (contingent) corporate-sovereign exposures, and deterioration in banks’ asset quality. The IMF-WB Financial Sector Assessment (FSA) shows that capital buffers in the banking sector are resilient to a short-term shock but increasingly under pressure in a longer recession, which might force some major banks to seek additional capital. This could be further exacerbated by potential growing global liquidity constraints. Risk Mitigation: The WBG can mitigate financial sector risks through implementation of the FSA’s recommendations through dialogue, technical assistance and possible DPL support, as well as through close coordination with the IMF (through its Article IV reviews). Ongoing operations in the financial sector can be restructured where relevant and feasible to address emerging issues

30

and new credit lines can be extended. Given expected increased pressure on the lira on the back of Turkey’s high external exposure, IFC will promote currency swaps for real sector clients, PPP investments, and municipalities with large open foreign-exchange positions. In addition, IFC will closely coordinate with MIGA to respond to commercial lenders’ increasing demand for risk guarantees. IFC will also stand ready to support banks to strengthen their regulatory capital. 78. Institutional capacity for project implementation and sustainability may be affected, due to coordination issues, institutional restructuring and weak ownership of projects by implementing agencies. This risk is assessed overall as moderate; however, these factors could exacerbate the intergovernmental coordination challenges, have an impact on policy direction, and create difficulties in reaching consensus on investment and other activities that have occasionally marred project implementation in the past. Risk Mitigation: The WBG would mitigate this risk through more intense capacity-building through its projects and ASA targeted at stronger coordination and monitoring. Clearer signs of up-front client commitment will be sought before the WBG expands its program in certain areas. A positive factor in this context is the government’s continued desire to implement its development plan, as evidenced in its current effort to tackle sensitive issues such as improving social programs, adjusting the pension regime, and increasing opportunities for vulnerable groups. The institutions with which the WBG works have traditionally been strong. However, institutional risks have recently resulted in hesitant decision-making. At the same time, the WBG needs to continue to show how WBG guidelines and policies in fiduciary and safeguards areas add value and result in improved development outcomes. The CPF could allow the program to be adapted to focus on areas of strength in the on-going portfolio and deliver additional financing and follow-on projects.

31

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es (2

017)

New

lend

ing:

D

PL se

ries

ASA

: Ta

x po

licy

advi

ce

Prog

ram

mat

ic g

over

nanc

e TA

Esta

blis

hmen

t of a

mon

itori

ng sy

stem

for

inte

rnal

con

trol

s in

publ

ic a

dmin

istra

tion

Bas

elin

e: N

o m

onito

ring

softw

are

popu

late

d w

ith in

form

atio

n (2

016)

T

arge

t: 70

% o

f cen

tral g

over

nmen

t in

stitu

tions

dat

a in

clud

ed in

the

mon

itorin

g so

ftwar

e (2

018)

Publ

icat

ion

of a

new

risk

man

agem

ent g

uide

line

for

publ

ic a

dmin

istra

tion

Bas

elin

e: N

o (2

016)

T

arge

t: Y

es (2

019)

Pu

blic

atio

n of

a n

ew in

tern

al a

udit

stra

tegy

pap

er

2017

-201

9 B

asel

ine:

No

(201

6)

Tar

get:

Yes

(201

7)

New

lend

ing:

D

PL se

ries

ASA

: Ta

x po

licy

advi

ce

Prog

ram

mat

ic g

over

nanc

e TA

EC

A P

FM T

F In

tern

al a

udit

SAFE

TF

32

CPF

Obj

ectiv

e 2:

Enh

ance

d A

cces

s to

Fina

nce

to U

nder

serv

ed S

egm

ents

Inte

rven

tion

Logi

c: S

treng

then

ing

the

finan

cial

sec

tor i

s cr

itica

l to

achi

eve

fast

er, p

rivat

e se

ctor

-led

grow

th w

hich

requ

ires

addr

essi

ng s

truct

ural

ch

alle

nges

, mov

ing

away

from

a b

ank-

cent

ric fi

nanc

ial s

yste

m, d

eepe

ning

and

div

ersi

fyin

g fin

anci

al a

nd c

apita

l mar

kets

and

bro

aden

ing

acce

ss to

fin

ance

to c

aptu

re u

nder

-ser

ved

segm

ents

(MSM

Es a

nd w

omen

). Th

e fo

cus

of th

e C

PF w

ill b

e on

del

iver

ing

rele

vant

ASA

that

will

hel

p in

form

go

vern

men

t po

licy

and

unde

rpin

fut

ure

inve

stm

ents

by

IBRD

and

IFC

. Th

e A

SA p

rogr

am w

ill c

over

crit

ical

iss

ues

such

as

finan

cial

sec

tor

dive

rsifi

catio

n, p

ensi

ons,

capi

tal m

arke

t and

ana

lysi

s of

sec

tor h

eadw

inds

and

how

to re

spon

d to

them

. IB

RD w

ill c

ontin

ue to

wor

k w

ith th

e sta

te

bank

s, de

velo

pmen

t ban

ks a

nd o

ther

fina

ncia

l ins

titut

ions

thro

ugh

new

lend

ing

oper

atio

ns th

at p

rovi

de lo

ng-te

rm fi

nanc

ial s

ourc

es th

at ex

tend

acc

ess

to f

inan

ce, i

ncen

tiviz

e in

vest

ors

in k

ey s

ecto

rs, a

nd d

eepe

n an

d di

vers

ify in

strum

ents

. IFC

will

con

tinue

to w

ork

with

fin

anci

al in

stitu

tions

and

in

term

edia

ries t

o ex

pand

the a

vaila

bilit

y of

fund

ing

to M

SMEs

, with

a p

artic

ular

focu

s on

rura

l are

as, w

omen

-ow

ned

ente

rpris

es, a

nd a

grib

usin

esse

s. It

will

con

tinue

to

(i) s

uppo

rt ba

nks

and

non-

bank

fin

anci

al i

nstit

utio

ns (

NBF

Is)

with

lon

ger-

term

fun

ds t

o he

lp t

hem

sca

le-u

p su

ppor

t to

the

un

ders

erve

d an

d un

bank

ed, (

ii) le

vera

ge d

iver

se in

strum

ents

and

mea

ns o

f fun

ding

; (iii

) util

ize

inte

rest

rate

and

cur

renc

y sw

aps f

or re

al se

ctor

clie

nts,

PP

P in

vest

men

ts a

nd m

unic

ipal

ities

; and

(iv)

pro

mot

e al

tern

ativ

e de

bt in

stru

men

ts s

uch

as c

over

ed b

onds

, div

ersi

fied

paym

ent r

ight

s (D

PRs)

, gre

en

bond

s, m

unic

ipal

bon

ds, P

PP p

roje

ct b

onds

(bo

th in

Lira

and

har

d cu

rren

cy).

IFC

will

clo

sely

coo

rdin

ate

with

MIG

A to

res

pond

to c

omm

erci

al

lend

ers’

incr

easi

ng d

eman

d fo

r ris

k gu

aran

tees

to e

nhan

ce m

unic

ipal

ities

’ cre

ditw

orth

ines

s and

to s

uppo

rt le

ndin

g ac

tiviti

es to

MSM

Es a

nd e

xpor

t-or

ient

ed c

ompa

nies

. C

PF O

bjec

tive

Indi

cato

rs

Supp

lem

enta

ry P

rogr

ess I

ndic

ator

s W

BG

Pro

gram

Pe

ople

, MSM

Es a

nd e

xpor

ters

reac

hed

with

IF

C fi

nanc

ial s

ervi

ces

B

asel

ine:

2.2

mill

ion

peop

le (2

015)

T

arge

t: 4

.1 m

illio

n (2

019)

O

f whi

ch w

omen

own

ed S

MEs

reac

hed

(num

ber)

Bas

elin

e: 2

7,00

0 (2

015)

Tar

get:

28,

500

(201

9)

MSM

Es a

nd e

xpor

ters

reac

hed

with

IBRD

fin

anci

al se

rvic

es

IBR

D B

asel

ine:

116

,000

(201

6)

IBR

D T

arge

t: 23

2,00

0 (2

020)

In

crea

se in

num

ber o

f pri

vate

pen

sion

m

embe

rs

Bas

elin

e: 2

016:

6.6

mill

ion

T

arge

t: 2

020:

7.5

mill

ion

(G

ende

r dis

aggr

egat

ion

data

is b

eing

col

lect

ed

and

will

be

prov

ided

at t

he P

LR)

Enha

ncin

g ex

tend

ed lo

an m

atur

ities

to fi

rms

bene

fitin

g fr

om IB

RD

fina

ncia

l sec

tor c

redi

t lin

es

Bas

elin

e: N

/A (i

ndic

ator

link

ed to

WB

finan

cial

se

ctor

cre

dit l

ines

star

ting

impl

emen

tatio

n)

Tar

get:

>1

Vol

ume

of o

utst

andi

ng M

SME

loan

por

tfolio

of

IFC

clie

nts

IF

C B

asel

ine:

$30

.5 b

illio

n (2

015)

IF

C T

arge

t: $

60 b

illio

n (2

019)

O

f whi

ch w

omen

own

ed M

SMEs

B

asel

ine:

$13

0 m

illio

n (2

015)

T

arge

t:

$220

mill

ion

(201

9)

Vol

ume

of o

utst

andi

ng M

SME

loan

por

tfolio

and

ex

port

loan

por

tfolio

of I

BRD

Clie

nts

IBR

D B

asel

ine:

$14

.5 b

illio

n (J

anua

ry 2

016)

IB

RD

Tar

get:

$29

bill

ion

(202

0)

Incr

ease

in o

utst

andi

ng c

orpo

rate

deb

t sec

uriti

es

portf

olio

(US$

bill

ion)

Ong

oing

lend

ing:

In

nova

tive

Acc

ess t

o Fi

nanc

e

SME

III

Long

Ter

m E

xpor

t Fin

ance

N

ew le

ndin

g:

DPL

serie

s N

ew F

inan

cial

Sec

tor p

roje

ct

ASA

: Fi

nanc

ial s

ecto

r dee

peni

ng T

A: F

ocus

on

suku

k an

d al

tern

ativ

e ca

pita

l mar

kets

inst

rum

ents

to fi

nanc

e lo

ng

term

infra

stru

ctur

e

TA o

n FS

A fo

llow

-up:

Foc

us o

n fin

anci

al se

ctor

su

perv

isio

n, m

onito

ring,

sys

tem

ic ri

sk a

nd c

risis

m

anag

emen

t to

supp

ort r

esili

ence

IF

C le

ndin

g:

Cap

ital m

arke

t dev

elop

men

t - in

vest

men

ts in

mun

icip

al,

euro

bond

and

loca

l cur

renc

y bo

nd m

arke

ts.

33

Bas

elin

e: 2

016:

US$

58 b

illio

n T

arge

t: 20

20: U

S$70

bill

ion

Incr

ease

in n

umbe

r of f

irms q

uote

d in

the

stoc

k ex

chan

ge

Bas

elin

e: 2

016:

381

T

arge

t: 2

020:

450

In

crea

se in

por

tfolio

size

of i

nstit

utio

nal i

nves

tors

B

asel

ine:

201

6: T

L 10

5 bi

llion

T

arge

t: 2

020:

TL

150

billi

on

Secu

ritiz

atio

n pr

oduc

ts to

incr

ease

dep

th a

nd c

ompe

titio

n in

the

bank

ing

sect

or.

Hed

ging

inst

rum

ents

to m

itiga

te in

tere

st ra

te a

nd

curr

ency

risk

. Ris

k m

itiga

tion

and

capi

tal r

elie

f too

ls fo

r do

mes

tic a

nd in

tern

atio

nal b

anks

. Lo

ng-te

rm fi

nanc

e to

ban

ks a

nd N

BFIs

(lea

sing

and

fa

ctor

ing

com

pani

es, a

nd d

istre

ssed

ass

et p

latfo

rms)

to

expa

nd fi

nanc

ing

to u

nder

-ser

ved

segm

ents

Su

pply

cha

in fi

nanc

e so

lutio

ns

IFC

Adv

isor

y: M

unic

ipal

bon

d m

arke

t dev

elop

men

t (w

ith IB

RD

) M

IGA

: Gua

rant

ee o

f non

-hon

orin

g of

a fi

nanc

ial

oblig

atio

n of

a st

ate-

owne

d en

terp

rise

(NH

FO-S

OE)

for

Turk

ish

Exim

bank

CPF

Obj

ectiv

e 3:

Enh

ance

d C

ompe

titiv

enes

s and

Em

ploy

men

t in

Sele

cted

Indu

stri

es

Inte

rven

tion

Logi

c: T

he S

CD h

ighl

ight

ed th

at T

urki

sh b

usin

esse

s nee

d to

impr

ove

thei

r com

petit

iven

ess t

hrou

gh in

nova

ting,

boo

stin

g pr

oduc

tivity

an

d m

ovin

g up

the

val

ue c

hain

. IB

RD’s

pro

gram

will

foc

us o

n a

deep

-div

e di

agno

stic

thr

ough

a C

EM i

n su

ppor

t of

Gov

ernm

ent

effo

rts o

n co

mpe

titiv

enes

s, tra

de li

bera

lizat

ion,

the

qual

ity o

f exp

orts

, inn

ovat

ion,

val

ue c

hain

pro

gres

sion

, the

abi

lity

to a

ttrac

t for

eign

dire

ct in

vest

men

t (FD

I),

and

regi

onal

inve

stm

ent c

limat

es. T

his

will

be

com

plem

ente

d by

TA

to im

prov

e th

e re

gula

tory

env

iron

men

t and

asp

ects

of c

ompe

titiv

enes

s rel

ated

to

reso

urce

effi

cien

cy a

nd c

lean

er p

rodu

ctio

n w

ith a

focu

s on

Org

aniz

ed In

dustr

ial Z

ones

(OIZ

s). T

his

ASA

will

und

erpi

n an

y re

leva

nt re

form

s tha

t m

ay b

e ca

ptur

ed in

the

futu

re D

PL s

erie

s, an

d w

ill h

elp

targ

et p

oten

tial h

igh-

grow

th o

r inn

ovat

ive

SMEs

(whi

ch in

turn

cou

ld b

e ta

rget

ed th

roug

h th

e fin

anci

al se

ctor

supp

ort p

ursu

ed u

nder

CPF

Obj

ectiv

e 2

abov

e). T

his s

trong

er fr

amew

ork

is ex

pect

ed to

lead

to e

nhan

ced

priv

ate s

ecto

r inv

estm

ent

whi

ch IF

C an

d M

IGA

cou

ld s

uppo

rt. I

n la

ter s

tage

s of t

he C

PF p

erio

d, IB

RD

may

step

-up

lend

ing

in su

ppor

t of i

nnov

atio

n, te

chno

logy

abs

orpt

ion,

cl

eane

r pro

duct

ion

and

an im

prov

ed b

usin

ess e

nviro

nmen

t, as

the

clie

nt d

eman

ds, a

nd th

is w

ill b

e re

flect

ed in

the

PLR

.

Thro

ugh

finan

cial

inte

rmed

iarie

s and

dire

ct e

ngag

emen

ts w

ith re

al se

ctor

com

pani

es, I

FC w

ill h

elp

stre

ngth

en th

e co

mpe

titiv

enes

s of T

urki

sh fi

rms

thro

ugh

inve

stm

ents

that

supp

ort n

ew te

chno

logi

es, i

nnov

atio

n an

d im

prov

ed g

over

nanc

e, a

s wel

l as r

egio

nal a

nd in

tern

atio

nal e

xpan

sion

. IFC

will

al

so c

ontin

ue in

vest

ing

in e

quity

fund

s tha

t pro

mot

e lo

cal e

ntre

pren

eurs

hip,

com

petit

iven

ess a

nd in

nova

tion,

whi

le a

lso

foste

ring

empl

oym

ent i

n hi

gh-g

row

th a

nd h

igh-

valu

e-ad

ded

sect

ors (

man

ufac

turin

g, te

leco

ms,

tech

nolo

gy a

nd a

grib

usin

ess)

. IFC

will

als

o ex

pand

the

Glo

bal T

rade

Fin

ance

pr

ogra

m w

hich

supp

orts

the

capa

city

of b

anks

to d

eliv

er tr

ade

finan

ce b

y pr

ovid

ing

risk

miti

gatio

n. IF

C w

ill p

rovi

de c

orpo

rate

gov

erna

nce

advi

sory

serv

ices

to T

urki

sh fi

rms,

as w

ell a

s tec

hnic

al a

ssist

ance

to im

prov

e lin

kage

s bet

wee

n SM

Es a

nd h

igh-

grow

th v

alue

cha

ins.

34

CPF

Obj

ectiv

e In

dica

tors

Su

pple

men

tary

Pro

gres

s Ind

icat

ors

WB

G P

rogr

am

Empl

oym

ent s

uppo

rted

by

IFC

clie

nts

(man

ufac

turi

ng, t

elec

om, t

echn

olog

y,

agri

busi

ness

) B

asel

ine:

39,

400

(201

5)

Tar

get:

5

9,00

0 (

2019

) o/

w Fe

mal

e Em

ploy

men

t sup

port

ed

Bas

elin

e: 1

1,00

0 (2

015)

T

arge

t:

12,

000

(20

19)

Empl

oym

ent s

uppo

rted

by

IFC

equ

ity fu

nds

inve

stee

s (#)

B

asel

ine:

1

5,00

0 (2

015)

T

arge

t:

17,

000

(201

9)

Stud

ents

reac

hed

by IF

C c

lient

s:

Bas

elin

e: 1

1,50

0 (2

015)

T

arge

t: 1

9,70

0 (2

019)

o/

w F

emal

e St

uden

ts re

ache

d B

asel

ine:

6,2

00 (2

015)

T

arge

t: 8

,800

(201

9)

Farm

ers r

each

ed b

y IF

C a

grib

usin

ess c

lient

s:

Bas

elin

e: 5

,400

(201

5)

Tar

get:

10,

900

(201

9)

New

lend

ing:

D

PL se

ries

Inno

vatio

n Pr

ojec

t A

SA:

CEM

on

prod

uctiv

ity

Busi

ness

env

ironm

ent a

nd F

DI-

loca

l firm

link

ages

M

anag

emen

t qua

lity,

inno

vatio

n an

d tra

de in

Ser

vice

s R

egul

ator

y en

viro

nmen

t and

job

oppo

rtuni

ties i

n Su

TP-

affe

cted

regi

ons

Enha

ncin

g co

mpe

titiv

enes

s and

gre

enin

g O

IZs

IFC

Cor

pora

te G

over

nanc

e ad

viso

ry p

roje

ct

IFC

inve

stm

ents

: In

vest

men

ts in

man

ufac

turin

g, te

leco

m &

IT, a

nd

agrib

usin

ess s

ecto

rs. S

uppo

rt fo

r voc

atio

nal t

rain

ing.

In

vest

men

ts in

priv

ate

equi

ty fu

nds a

nd o

ther

col

lect

ive

inve

stm

ent v

ehic

les

focu

sed

on h

igh-

grow

th, h

igh

valu

e-ad

ded

sect

ors.

Trad

e fin

ance

. FO

CU

S A

REA

2: I

NC

LUSI

ON

W

BG s

uppo

rt in

this

are

a ai

ms

to c

onso

lidat

e Tu

rkey

’s s

ucce

ss to

war

ds a

chie

ving

the

twin

goa

ls w

hile

als

o su

ppor

ting

effo

rts t

o re

ach

thos

e w

ho

are

left

behi

nd.

This

impl

ies

real

izin

g th

e de

mog

raph

ic d

ivid

end

by c

reat

ing

good

jobs

for i

ncre

asin

g nu

mbe

rs o

f wor

kers

, whi

ch in

volv

es b

ette

r in

tegr

atio

n of

wom

en, y

outh

and

SuT

Ps in

to th

e la

bor f

orce

, red

ucin

g ge

nder

ineq

ualit

ies

in a

cces

s to

eco

nom

ic o

ppor

tuni

ties,

redu

cing

regi

onal

la

bor-

mar

ket d

ispa

ritie

s, an

d ra

isin

g le

arni

ng le

vels

. The

WBG

’s p

rogr

am to

dat

e in

this

foc

us a

rea

had

a co

ncen

tratio

n on

ASA

whi

ch in

form

s go

vern

men

t pol

icy

and

DPL

s. Br

oad

issu

es o

f equ

ity, v

ulne

rabi

lity

and

regi

onal

dis

parit

ies

– th

at c

ut a

cros

s the

who

le o

f the

WBG

pro

gram

and

not

ju

st th

is F

ocus

Are

a –

will

con

tinue

to b

e th

e fo

cus

of in

-dep

th A

SA, t

hrou

gh a

futu

re C

EM o

r oth

er d

eep-

dive

dia

gnos

tic. A

n im

porta

nt e

volu

tion

of th

e W

BG p

rogr

am in

this

CPF

are

a ha

s bee

n an

d w

ill c

ontin

ue to

be

the

intro

duct

ion

of n

ew in

vest

men

t ope

ratio

ns fi

nanc

ed b

y th

e EU

’s F

acili

ty

for

Refu

gees

in

Turk

ey (

FRiT

) w

hich

has

allo

wed

the

WBG

to

com

plem

ent

its A

SA w

ith m

ore

in-d

epth

sup

port

thro

ugh

the

desi

gn a

nd

impl

emen

tatio

n of

FRi

T pr

ojec

ts.

CPF

Obj

ectiv

e 4:

Incr

ease

d Ef

fect

iven

ess o

f Soc

ial A

ssis

tanc

e

Inte

rven

tion

Logi

c: T

his C

PF o

bjec

tive

has t

he g

oal o

f im

prov

ing

effic

ienc

y an

d ef

fect

iven

ess i

n so

cial

ass

ista

nce

and

stren

gthe

ning

the

evid

ence

-bas

e fo

r pol

icie

s aim

ing

to n

arro

w g

aps b

etw

een

regi

ons a

nd e

nsur

e gr

eate

r inc

lusi

on o

f vul

nera

ble

grou

ps.

In th

is c

onte

xt, t

he W

BG

will

co

ntin

ue it

s sup

port

to m

akin

g th

e so

cial

ass

ista

nce

syst

em m

ore

effe

ctiv

e an

d ef

ficie

nt.

The

ASA

pro

gram

will

con

tinue

to p

rodu

ce a

nd

diss

emin

ate

mon

etar

y an

d no

n-m

onet

ary

indi

cato

rs o

f wel

fare

and

incl

usio

n, in

clud

ing

equa

lity

of o

ppor

tuni

ty a

nd m

ulti-

dim

ensi

onal

pov

erty

, and

pr

ovid

e te

chni

cal a

ssis

tanc

e to

the

Pove

rty R

educ

tion

Stra

tegy

and

Soc

ial A

ssis

tanc

e R

efor

m in

itiat

ive

of th

e M

inis

try o

f Fam

ily a

nd S

ocia

l

35

Polic

ies (

MoF

SP).

An

asse

ssm

ent o

f the

soci

al su

ppor

t sys

tem

of t

he d

isab

led

and

agin

g po

pula

tion

will

als

o be

und

erta

ken

to a

scer

tain

the

adeq

uacy

of s

ocia

l ass

ista

nce

and

supp

ort p

rogr

ams a

vaila

ble

to p

rote

ct th

ese

rela

tivel

y vu

lner

able

pop

ulat

ions

. C

PF O

bjec

tive

Indi

cato

rs

Supp

lem

enta

ry P

rogr

ess I

ndic

ator

s W

BG

Pro

gram

In

crea

sed

impa

ct o

f soc

ial a

ssis

tanc

e on

the

pove

rty

gap.

B

asel

ine:

9.9

% c

over

age

of p

over

ty g

ap

Tar

get:

20%

cov

erag

e of

pov

erty

gap

In

crea

sed

avai

labi

lity

of m

onet

ary

and

non-

mon

etar

y in

dica

tors

of w

elfa

re a

nd in

clus

ion

B

asel

ine:

No

indi

cato

r ava

ilabl

e T

arge

t: 10

diff

eren

t mon

etar

y/no

n-m

onet

ary

indi

cato

rs a

vaila

ble

New

fina

ncin

g:

DPL

serie

s So

cial

Incl

usio

n pr

ojec

t A

SA:

Pov

erty

Red

uctio

n St

rate

gy a

nd S

ocia

l Ass

ista

nce

Ref

orm

TA

on

Mul

ti -di

men

sion

al p

over

ty a

nd in

equa

lity

indi

cato

rs

Dis

abili

ty a

nd a

ging

stud

y

CPF

Obj

ectiv

e 5:

Incr

ease

d La

bor

Forc

e Pa

rtic

ipat

ion

of W

omen

& V

ulne

rabl

e G

roup

s

Inte

rven

tion

Logi

c: W

BG s

uppo

rt un

der t

his

obje

ctiv

e ai

ms

to b

ring

mor

e pe

ople

– e

spec

ially

wom

en a

nd y

outh

– in

to th

e fo

rmal

labo

r mar

ket.

The

Bank

int

ends

to

cont

inue

its

rol

e of

pro

vidi

ng a

com

preh

ensi

ve p

acka

ge o

f A

SA a

nd p

ropo

se r

efor

m r

ecom

men

datio

ns w

hich

can

gui

de

Gov

ernm

ent d

ecis

ion-

mak

ing

and

coul

d in

turn

be

supp

orte

d th

roug

h D

PLs.

The

influ

x of

SuT

Ps h

as c

reat

ed n

ew c

halle

nges

am

ong

the

labo

r for

ce,

parti

cula

rly f

or th

ose

in th

e so

uth-

east

whi

ch is

hos

ting

the

larg

est c

once

ntra

tion

of S

uTPs

. The

WB

G w

ill h

elp

to a

ddre

ss th

ese

issu

es th

roug

h co

ntin

ued

polic

y ad

vice

(sup

porte

d by

EU

and

SID

A tr

ust f

unds

) and

som

e pr

ojec

t int

erve

ntio

ns. A

FRi

T-fu

nded

labo

r mar

ket i

nclu

sion

pro

ject

(€50

m

illio

n, u

nder

pre

para

tion

and

expe

cted

to b

e ap

prov

ed in

mid

-201

7) ta

rget

s in

crea

sed

SuTP

par

ticip

atio

n in

the

labo

r m

arke

t thr

ough

pro

vidi

ng

acce

ss t

o A

LMPs

. Th

is i

s co

mpl

emen

ted

by F

RiT

fun

ding

of

€5 m

illio

n fo

r IB

RD a

dvis

ory

wor

k to

sup

port

faci

litat

ion

of e

mpl

oym

ent

and

entre

pren

eurs

hip

oppo

rtuni

ties i

n Su

TP-a

ffect

ed re

gion

s. F

urth

er IB

RD

and

/or E

U in

vest

men

ts w

ill b

e co

nsid

ered

whe

re th

ere

is c

lient

dem

and

and

a lin

k to

the

twin

goa

ls; o

ne a

rea

unde

r di

scus

sion

is li

velih

ood

supp

ort f

or S

uTPs

in th

e ag

ri-f

ood

sect

or. T

he W

BG is

als

o pr

ovid

ing

supp

ort t

o de

vise

a c

ompr

ehen

sive

stra

tegy

for m

anag

ing

mig

ratio

n in

the

labo

r mar

ket.

U

nder

this

obj

ectiv

e, IF

C a

ims t

o in

vest

in p

roje

cts t

hat p

rom

ote

grea

ter e

quity

in th

e ac

cess

of v

ulne

rabl

e an

d un

ders

erve

d gr

oups

to se

rvic

es, j

obs,

and

finan

ce. I

FC w

ill sc

ale

up it

s SM

E fin

anci

ng ta

rget

ed to

wom

en e

ntre

pren

eurs

and

farm

ers a

nd w

ill le

vera

ge N

BFI

s to

broa

den

acce

ss to

fina

nce

for t

hese

gro

ups.

It w

ill a

lso

inve

st in

key

man

ufac

turin

g co

mpa

nies

with

pre

senc

e in

the

sout

h ea

st re

gion

with

a v

iew

to s

uppo

rt em

ploy

men

t in

the

regi

on. A

imin

g to

hel

p un

ders

erve

d po

pula

tions

acc

ess

bette

r urb

an s

ervi

ces,

IFC

will

pur

sue

inve

stm

ent o

ppor

tuni

ties

in c

omm

erci

ally

-via

ble

urba

n in

frastr

uctu

re p

roje

cts i

n se

cond

-tier

, les

s dev

elop

ed re

gion

s. In

add

ition

, IFC

will

offe

r adv

isor

y se

rvic

es to

Tur

kish

cor

pora

tes t

o he

lp th

em

deve

lop

gend

er p

rogr

ams t

hat s

uppo

rt w

omen

’s e

mpl

oym

ent a

nd e

ntre

pren

eurs

hip

CPF

Obj

ectiv

e In

dica

tors

Su

pple

men

tary

Pro

gres

s Ind

icat

ors

WB

G P

rogr

am

Incr

ease

d Fe

mal

e La

bor F

orce

Par

ticip

atio

n B

asel

ine :

31.

5% in

201

5 Ta

rget

: 35%

by

2018

(10th

DP

targ

et),

41%

by

202

3 (N

atio

nal E

mpl

oym

ent S

trat

egy

targ

et)

Early

chi

ldho

od e

duca

tion

and

care

enr

olm

ent r

ates

B

asel

ine:

1,2

09,1

06 (N

atio

nal E

duca

tion

Stat

istic

s, Fo

rmal

Edu

catio

n 20

15/1

6)

Tar

get:

Incr

ease

of 1

0% o

ver b

asel

ine

New

fina

ncin

g:

DPL

serie

s EU

FR

IT L

abor

Mar

ket P

roje

ct

EU F

RIT

Edu

catio

n Pr

ojec

t Fu

ture

EU

-fund

ed p

roje

cts

for S

uTPs

36

Incr

ease

d yo

uth

part

icip

atio

n in

labo

r for

ce

Bas

elin

e : Y

outh

(15-

19) N

ot In

Edu

catio

n,

Empl

oym

ent o

r Tra

inin

g (N

EET)

: Mal

e 11

.3%

, Fem

ale

21.9

% (2

015)

Ta

rget

: Red

uce

NEE

T by

10%

In

crea

sed

rate

for S

uTP

was h

ave

a wo

rk

perm

it am

ong

elig

ible

SuT

Ps o

f wor

k-ag

e po

pula

tion

(gen

der d

isag

greg

ated

) B

asel

ine:

8,0

00 o

ut o

f 900

,000

(<1%

) elig

ible

Su

TP w

ork-

age

popu

latio

n ha

s a w

ork

perm

it (2

016)

Ta

rget

: 5%

incr

ease

(202

1), o

/w 2

5% a

re

wom

en

Dir

ect e

mpl

oym

ent s

uppo

rted

by IF

C

man

ufac

turi

ng c

lient

s in

sout

heas

t reg

ions

Bas

elin

e: 3

8,00

0 (2

015)

Targ

et:

43,0

00 (2

019)

(G

ende

r dis

aggr

egat

ed d

ata

bein

g co

llect

ed)

Num

ber o

f you

th in

ALM

Ps

Bas

elin

e: 7

4,74

8 m

ale

and

76,1

72 fe

mal

e (1

5-24

) cu

rren

tly in

ALM

Ps (2

015)

T

arge

t: In

crea

se o

f 10%

ove

r bas

elin

e

EU/IP

A P

roje

ct fo

r You

th A

t Ris

k A

SA:

IPA

for I

SKU

R, J

obs

Trus

t Fun

d SI

DA

TF

Pove

rty a

nd E

quity

lens

on

labo

r mar

kets

, inc

ludi

ng

Reg

iona

l dis

parit

ies

Mig

ratio

n m

anag

emen

t for

edu

catio

n Sy

rian

refu

gee

cris

is re

spon

se

NEE

T st

udy

Pi

lot o

f SE

Skill

s and

Eva

luat

ion

Qua

lity

of J

obs:

Min

imum

Wag

e an

d In

form

ality

IF

C:

IFC

Gen

der P

rogr

am

Fina

ncin

g w

omen

-ow

ned

com

pani

es

Fina

ncin

g pr

ivat

e se

ctor

com

pani

es w

hich

hav

e fo

otpr

ints

in

lagg

ing

regi

ons.

CPF

Obj

ectiv

e 6:

Str

engt

hene

d Pe

rfor

man

ce o

f the

Edu

catio

n an

d H

ealth

Sec

tors

Inte

rven

tion

Logi

c: T

he fo

cus o

f the

WBG

’s p

rogr

am in

the

heal

th se

ctor

is o

n pr

omot

ing

heal

thy

lifes

tyle

s thr

ough

atta

ckin

g be

havi

oral

risk

s. A

n on

goin

g IB

RD-fi

nanc

ed h

ealth

pro

ject

aim

s to

enha

nce

the

capa

city

of t

he M

inis

try o

f Hea

lth (M

oH) f

or e

vide

nce-

base

d po

licy

mak

ing,

incr

ease

the

man

agem

ent c

apac

ity o

f hos

pita

ls, a

nd im

prov

e th

e pr

even

tion

of s

elec

ted

non-

com

mun

icab

le d

isea

ses (

NCD

s). I

BR

D w

ill c

ontin

ue to

sup

port

the

seco

nd p

hase

of

the

heal

th t

rans

form

atio

n pr

ogra

m t

hrou

gh a

ctiv

ities

foc

usin

g on

pro

vidi

ng a

ppro

pria

te h

igh-

qual

ity c

are

by r

esul

ts-b

ased

in

terv

entio

ns a

nd p

aym

ent r

efor

ms.

The

ASA

pro

gram

will

als

o fo

cus

on a

sses

sing

the

sust

aina

bilit

y of

hea

lth u

tiliz

atio

n, th

roug

h th

e cr

eatio

n of

m

odel

ing

tool

s as

wel

l as

asse

ssin

g ut

iliza

tion

patte

rns.

Bui

ldin

g on

refo

rms

impl

emen

ted

with

IBR

D s

uppo

rt, a

nd o

n its

exp

erie

nce

in fi

nanc

ing

Turk

ey’s

firs

t hea

lth P

PP p

roje

cts,

IFC

will

con

tinue

to s

uppo

rt Tu

rkey

’s h

ealth

sec

tor t

hrou

gh in

vest

men

ts in

spe

cial

ized

hea

lth s

ervi

ce p

rovi

ders

, an

d th

roug

h fin

anci

al in

nova

tion

to h

elp

crea

te a

ltern

ativ

e ca

pita

l mar

ket s

olut

ions

for f

inan

cing

hea

lth s

ecto

r pro

ject

s. Fo

r exa

mpl

e, IF

C fin

ance

d Tu

rkey

’s fi

rst g

reen

field

infra

struc

ture

PPP

bon

d is

suan

ce u

nder

the

Elaz

ig H

ealth

PPP

pro

ject

, whi

ch w

as a

lso

supp

orte

d by

MIG

A a

nd E

BR

D

thro

ugh

cred

it en

hanc

emen

t pro

duct

s. IF

C w

ill su

ppor

t suc

h in

nova

tive

finan

cial

stru

ctur

es fo

r soc

ial a

nd o

ther

infra

stru

ctur

e pr

ojec

ts o

n a

sele

ctiv

e ba

sis. I

n ad

ditio

n, IF

C w

ill in

vest

in s

peci

aliz

ed s

ervi

ces

(e.g

., bi

o-ph

arm

aceu

tical

s m

anuf

actu

ring)

, whe

re it

can

pla

y a

role

in b

ringi

ng in

stra

tegi

c in

vest

ors.

MIG

A w

ill c

ontin

ue to

inve

st in

Tur

key’

s hea

lth P

PP p

rogr

am th

roug

h pr

ovid

ing

guar

ante

es a

nd c

redi

t enh

ance

men

t. In

the

educ

atio

n se

ctor

, the

CPF

pro

pose

s to

ste

p up

ASA

in re

spon

se to

the

rece

nt fa

ll in

PIS

A a

nd T

IMSS

sco

res

for

Turk

ey a

nd a

lso

help

the

Min

istry

of N

atio

nal E

duca

tion

(MoN

E) st

reng

then

its l

ife lo

ng le

arni

ng, t

each

er tr

aini

ng, a

nd d

ista

nce

educ

atio

n ap

proa

ches

. Giv

en th

e tim

e req

uire

d to

impa

ct le

arni

ng, r

esul

ts a

re li

kely

to b

e m

odes

t and

ach

ieve

d be

yond

the C

PF ti

mef

ram

e. I

BRD

will

impl

emen

t a F

RiT

-fina

nced

edu

catio

n pr

ojec

t

37

(€15

0 m

illio

n) w

hich

aim

s to

expa

nd e

duca

tion

serv

ice

deliv

ery

and

targ

ets r

esou

rces

to v

ulne

rabl

e Su

TP-a

ffect

ed a

reas

thro

ugh

cons

truct

ion

of n

ew

scho

ols.

IBRD

is a

lso

prov

idin

g te

chni

cal s

uppo

rt to

der

ive

a st

rate

gy to

inte

grat

e im

mig

rant

chi

ldre

n in

to th

e ed

ucat

ion

and

voca

tiona

l sys

tem

. In

ad

ditio

n, a

new

EU

/IPA

-fun

ded

proj

ect t

arge

ting

yout

h w

ho h

ave

drop

ped

out a

nd a

re a

t ris

k of

low

edu

catio

n le

vels

and

vul

nera

ble

to p

over

ty w

ill

be im

plem

ente

d in

are

as w

here

dro

p-ou

t rat

es o

f Tur

kish

you

th is

hig

h an

d w

here

SuT

P yo

uth

are

at ri

sk o

f nev

er e

nter

ing

scho

ol.

IFC

will

look

for

oppo

rtuni

ties t

o in

vest

in e

duca

tion

serv

ice

clie

nts t

o pr

omot

e pr

ivat

e vo

catio

nal t

rain

ing.

C

PF O

bjec

tive

Indi

cato

rs

Supp

lem

enta

ry P

rogr

ess I

ndic

ator

s W

BG

Pro

gram

In

crea

sed

perc

enta

ge o

f for

mal

scho

ol

enro

lmen

t of S

uTP

child

ren

aged

6-1

5 B

asel

ine:

469

,495

chi

ldre

n ac

cess

ing

educ

atio

n (1

49,4

39 in

form

al e

duca

tion

and

320,

056

in te

mpo

rary

edu

catio

n ce

nter

s: ra

tio

is 3

2%)

Targ

et: 6

00,0

00 c

hild

ren

acce

ssin

g ed

ucat

ion

(40%

in fo

rmal

edu

catio

n), 5

0-50

split

of

mal

e-fe

mal

e ch

ildre

n Im

prov

emen

t of p

rim

ary

and

seco

ndar

y pr

even

tion

of n

on-c

omm

unic

able

dise

ases

(N

CD

s)

Bas

elin

e (2

015)

: 10%

cha

nge

of ta

rget

po

pula

tion

usin

g se

rvic

es o

f Hea

lthy

Livi

ng

Cen

ters

Ta

rget

: 50%

N

umbe

r of P

atie

nts S

erve

d th

roug

h IF

C h

eath

se

ctor

clie

nts

Bas

elin

e: 0

(201

5)

Targ

et:

14.0

mill

ion

(201

9)

(Gen

der d

isag

greg

ated

dat

a be

ing

colle

cted

)

Num

ber o

f add

ition

al s

choo

ls re

habi

litat

ed o

r co

nstru

cted

und

er E

U F

RiT

-fina

nced

pro

ject

B

asel

ine:

0 (2

016)

T

arge

t: 5

6 (2

020)

Pe

rcen

t of h

ouse

hold

s tha

t rec

eive

from

hea

lth

wor

kers

cou

nsel

ling

or e

duca

tion

rela

ted

to h

ealth

y liv

ing

Bas

elin

e: 1

0% in

201

6 T

arge

t: 11

% in

202

0 (a

t end

of I

BRD

pro

ject

) Pe

rcen

t of u

sers

of H

ealth

Liv

ing

Cen

ters

satis

fied

with

eas

e of

acc

ess t

o H

ealth

y Li

ving

Cen

ters

an

d/or

resp

onsi

vene

ss o

f ser

vice

s to

user

s' in

divi

dual

nee

ds

Bas

elin

e: 5

0% in

201

6 T

arge

t: 70

% in

202

0

Len

ding

: H

ealth

Sec

tor p

roje

ct (o

n-go

ing)

N

ew fi

nanc

ing:

FR

IT E

duca

tion

proj

ect

Futu

re E

U-fu

nded

pro

ject

s fo

r Su

TPs

ASA

: Tu

rkey

obe

sity

cas

e st

udy

Doc

umen

ting

Turk

ish

expe

rienc

e in

toba

cco

use

cont

rol

Pove

rty a

nd E

quity

lens

on

nutri

tion

and

educ

atio

n,

incl

udin

g R

egio

nal D

ispa

ritie

s D

isab

ility

and

agi

ng st

udy

Hea

lth e

xpen

ditu

re p

roje

ctio

n ac

tuar

ial m

odel

TA

Po

litic

al E

cono

my

of H

ealth

Ref

orm

and

Ass

essm

ent o

f th

e U

tiliz

atio

n of

Prim

ary

Car

e A

naly

sis o

f PIS

A-T

IMSS

Te

ache

r tra

inin

g an

d pr

imar

y ed

ucat

ion

refo

rm T

A

IFC

: In

vest

men

ts in

inno

vativ

e fin

anci

al st

ruct

ures

suc

h as

he

alth

Pro

ject

Bon

ds

Supp

ortin

g pr

ivat

e se

ctor

hea

lthca

re c

ompa

nies

, es

peci

ally

in sp

ecia

lized

hea

lth s

ervi

ces

FO

CU

S A

REA

3: S

UST

AIN

AB

ILIT

Y

Econ

omic

gro

wth

and

urb

aniz

atio

n in

Tur

key

are

not y

et d

ecou

pled

from

risi

ng e

nerg

y us

e, p

ollu

tion

and

gree

nhou

se-g

as (G

HG

) em

issi

ons,

so th

ere

is m

uch

pote

ntia

l for

gre

ater

reso

urce

effi

cien

cy a

nd p

ollu

tion

abat

emen

t. Th

e ch

alle

nges

are

to p

rovi

de c

onne

ctiv

ity a

nd a

gglo

mer

atio

n be

nefit

s in

an e

nviro

nmen

tally

, soc

ially

and

fina

ncia

lly s

usta

inab

le w

ay (p

artic

ular

ly a

s reg

ards

redu

cing

ene

rgy

inte

nsity

and

avo

idin

g w

ater

sca

rcity

) as

wel

l as

to e

nsur

e th

at c

ities

are

mor

e di

sast

er-r

esili

ent.

The

WB

G’s

pro

gram

will

hel

p ad

dres

s th

e SC

D-h

ighl

ight

ed c

halle

nge

of r

eorie

ntin

g gr

owth

to

war

ds a

mor

e gr

een,

resi

lient

and

sus

tain

able

pat

tern

. It w

ill p

rovi

de s

uppo

rt by

bui

ldin

g on

the

wel

l-est

ablis

hed

IBR

D a

nd IF

C c

olla

bora

tion

in

ener

gy a

nd u

rban

/mun

icip

al s

ervi

ces,

whe

re 7

5 pe

rcen

t of I

BRD

’s in

vest

men

t pro

gram

is a

lread

y co

ncen

trate

d, a

nd w

ill e

ncou

rage

evo

lutio

n in

the

38

prog

ram

tow

ards

issu

es cr

itica

l to

Turk

ey’s

futu

re g

row

th.

This

is c

onsi

sten

t with

the

10th D

P Tr

ansf

orm

atio

n Pr

ogra

ms f

ocus

ed o

n in

crea

sed

ener

gy

effic

ienc

y an

d ge

nera

tion

from

loca

l res

ourc

es, u

rban

rede

velo

pmen

t, im

prov

ed a

cces

s to

pot

able

wat

er a

nd w

aste

wat

er s

ervi

ces,

effe

ctiv

e us

e of

w

ater

in a

gric

ultu

re, a

nd su

stai

nabi

lity

in th

e us

e of

nat

ural

cap

ital.

CPF

Obj

ectiv

e 7:

Impr

oved

rel

iabi

lity

of e

nerg

y su

pply

and

gen

erat

ion

of g

reen

ene

rgy

Inte

rven

tion

Logi

c: T

he W

BG’s

cur

rent

pro

gram

is h

eavi

ly c

once

ntra

ted

in th

e en

ergy

sect

or, w

ith IB

RD p

olic

y ad

vice

and

TA

pav

ing

the

way

for

stepp

ed-u

p pr

ivat

e se

ctor

eng

agem

ent s

uppo

rted

by IF

C an

d M

IGA

. It e

ncom

pass

es: (

i) in

crea

sing

the

perc

enta

ge o

f ren

ewab

le e

lect

ricity

gen

erat

ion

and

impr

ovin

g its

inte

grat

ion

into

the

grid

thro

ugh

the

ongo

ing

Ren

ewab

le E

nerg

y In

tegr

atio

n, th

e Pr

ivat

e Se

ctor

Ren

ewab

le E

nerg

y an

d En

ergy

Ef

ficie

ncy,

the G

eoth

erm

al D

evel

opm

ent a

nd th

e EU

/IPA

Ene

rgy

Sect

or T

A P

roje

cts;

(ii) e

nhan

cing

ene

rgy

secu

rity

and

gas s

tora

ge c

apac

ity th

roug

h th

e on

-goi

ng G

as S

ecto

r Dev

elop

men

t Pro

ject

and

the

prop

osed

Gas

Sto

rage

Exp

ansi

on P

roje

ct; (

iii)

deve

lopi

ng e

nerg

y tra

ding

and

rest

ruct

urin

g BO

TAS

thro

ugh

the

EU/IP

A E

nerg

y Se

ctor

TA

Pro

ject

; and

(iv)

sec

urin

g an

d di

vers

ifyin

g Tu

rkey

’s g

as s

uppl

y w

ith g

as im

ports

from

Aze

rbai

jan

thro

ugh

the

Tran

s-A

nato

lian

Pipe

line

(TA

NA

P) P

roje

ct –

whe

re $

800

mill

ion

in IB

RD lo

ans t

o Tu

rkey

’s B

OTA

Ş an

d A

zerb

aija

n’s S

GC

leve

rage

d $6

00 m

illio

n fro

m th

e A

sian

Infra

struc

ture

Inve

stm

ent B

ank

(AIIB

) and

the

expe

ctat

ion

of u

p to

$1.

2 bi

llion

in g

uara

ntee

s fro

m M

IGA

. G

iven

the

com

para

tive

adva

ntag

e of

IBRD

eng

agem

ent i

n th

e se

ctor

, fur

ther

ene

rgy

inve

stm

ents

may

follo

w, o

n cl

ient

dem

and,

obs

ervi

ng th

e W

BG

’s c

asca

de

appr

oach

on

leve

ragi

ng p

rivat

e fin

anci

ng a

s nee

ded

and

appr

opria

te.

IBR

D, I

FC, a

nd M

IGA

will

wor

k cl

osel

y to

geth

er to

hel

p Tu

rkey

impr

ove

its

PPP

polic

y fra

mew

ork

to st

imul

ate

furth

er p

rivat

e se

ctor

ene

rgy

inve

stm

ents

, stre

ngth

en th

e en

ergy

regu

lato

ry e

nviro

nmen

t, an

d in

crea

se lo

ng-te

rm

finan

cing

for

rene

wab

le e

nerg

y. T

his

ASA

will

als

o fe

ed in

to th

e de

sign

of f

utur

e D

PLs,

whi

ch c

ould

stim

ulat

e in

vest

men

ts in

ren

ewab

le e

nerg

y ge

nera

tion

and

trans

mis

sion

and

the

rela

ted

clim

ate

chan

ge b

enef

its.

IFC

aim

s to

supp

ort T

urke

y’s e

nerg

y se

curit

y, a

nd h

elp

reba

lanc

e its

ene

rgy

mix

thro

ugh

sele

ctiv

e, a

nd st

rate

gic e

ngag

emen

ts in

the s

ecto

r an

d w

ill s

eek

out i

nves

tmen

ts w

here

IFC

can

pla

y a

mob

iliza

tion

role

, par

ticul

arly

in th

e fo

rm o

f FD

Is.

IFC

will

pro

vide

long

-term

fin

ance

to

dist

ribut

ion

com

pani

es to

upg

rade

the

dist

ribut

ion

netw

ork.

IFC

als

o ai

ms t

o he

lp p

ower

com

pani

es a

ddre

ss c

urre

ncy

mis

mat

ches

by

offe

ring

suita

ble

finan

cing

sch

emes

to h

edge

thei

r for

eign

exc

hang

e ris

ks.

IFC

will

see

k in

vest

men

t opp

ortu

nitie

s in

new

tech

nolo

gies

(e.g

. sm

art m

eter

s) to

he

lp a

ddre

ss s

ome

of th

e pr

oble

ms

in th

e po

wer

dist

ribut

ion

sect

or. I

n ad

ditio

n, IF

C w

ill lo

ok fo

r opp

ortu

nitie

s to

sup

port

shor

tage

s in

ga

s su

pply

thro

ugh

inve

stm

ents

in g

as in

frast

ruct

ure

incl

udin

g im

port

term

inal

s an

d st

orag

e as

we l

l as

gas

dist

ribut

ion.

MIG

A re

mai

ns

open

to su

ppor

ting

FDI i

n th

e re

new

able

spac

e th

roug

h th

e pr

ovis

ion

of p

oliti

cal r

isk

insu

ranc

e gu

aran

tees

. C

PF O

bjec

tive

Indi

cato

rs

Supp

lem

enta

ry P

rogr

ess I

ndic

ator

s W

BG

Pro

gram

Re

newa

ble

elec

tric

ity g

ener

atio

n as

pe

rcen

tage

of t

otal

gen

erat

ion

(%).

B

asel

ine:

31.

5% in

201

5 Ta

rget

: 33%

in 2

021

Va

lue

of lo

ans p

rovi

ded

by IF

C c

lient

s to

rene

wabl

e pr

ojec

ts

Bas

elin

e: $

38m

(201

5)

Targ

et:

$6

6m (2

019)

Inst

alle

d re

new

able

ene

rgy

capa

city

fina

nced

th

roug

h IB

RD

Pro

ject

s (M

W)

Bas

elin

e: 0

in 2

016

T

arge

t 116

MW

in 2

021

R

enew

able

ene

rgy

gene

rate

d th

roug

h IB

RD

(M

Wh/

year

) B

asel

ine:

0 in

201

6

Tar

get:

200,

000

in F

Y20

17

Ong

oing

lend

ing:

G

as S

ecto

r Dev

. Pro

ject

R

enew

able

Ene

rgy

Int.

Proj

ect

SME

Ener

gy E

ff. P

roje

ct

Priv

. Sec

tor R

enew

able

Ene

rgy

& E

nerg

y Ef

f. Pr

ojec

t N

ew le

ndin

g:

TAN

AP

Geo

ther

mal

Dev

elop

men

t pro

ject

N

ew D

PLs

Gas

Sto

rage

Exp

ansi

on P

roje

ct

39

Tota

l pow

er g

ener

atio

n an

d di

stri

butio

n cl

ient

s rea

ched

(IFC

) (m

illio

ns)

Bas

elin

e: 4

.33

(201

5)

Targ

et:

6.89

(201

9)

Incr

ease

d ca

paci

ty o

f gas

stor

age

(bcm

).

Bas

elin

e: 2

.8 b

cm in

201

6 Ta

rget

: 3.8

bcm

in 2

021

G

as im

port

s thr

ough

TAN

AP (b

cm/a

nnum

).

Bas

elin

e: 0

in 2

016

Targ

et: 5

in 2

021

Win

d en

ergy

gen

erat

ed fr

om p

lant

s con

nect

ed to

su

bsta

tions

fund

ed u

nder

REI

P (M

Wh/

year

) B

asel

ine:

0 in

201

6 T

arge

t: 1,

743

in 2

018

Pow

er g

ener

ated

(GW

h) th

roug

h IF

C fi

nanc

ial

serv

ices

B

asel

ine:

16,

700

(201

5)

Tar

get:

34,6

00 (2

019)

R

estru

ctur

ing

of B

OTA

S

Bas

elin

e: N

o in

201

6 T

arge

t: Y

es in

202

1

Impr

oved

and

mor

e tra

nspa

rent

who

lesa

le g

as

tradi

ng th

roug

h th

e es

tabl

ishm

ent o

f Gas

Tra

ding

Pl

atfo

rm

Bas

elin

e: N

o in

201

6 T

arge

t: Y

es in

202

1

Impr

oved

lega

l, re

gula

tory

and

inst

itutio

nal

envi

ronm

ent i

n th

e Tu

rkey

gas

mar

ket t

hrou

gh th

e en

actm

ent o

f the

am

endm

ent t

o th

e N

atur

al G

as

Mar

ket L

aw

Bas

elin

e: N

o in

201

6 T

arge

t: Y

es in

202

1

New

ene

rgy

sect

or p

roje

ct(s

) A

SA:

Roo

ftop

Sola

r PV

Ass

essm

ent

Dis

com

s ana

lysi

s EU

/IPA

Ene

rgy

Sect

or T

echn

ical

Ass

ista

nce

Prog

ram

IF

C:

IFC

fina

ncin

g fo

r dis

tribu

tion,

and

gas

infra

stru

ctur

e su

ch

as im

port

term

inal

s, st

orag

e, a

nd d

istri

butio

n.

IFC

supp

ort f

or n

ew fi

nanc

ing

inst

rum

ents

– lo

cal

curr

ency

fina

ncin

g an

d cu

rren

cy sw

aps t

o m

itiga

te

curr

ency

risk

CPF

Obj

ectiv

e 8:

Impr

oved

sust

aina

bilit

y an

d re

silie

nce

of c

ities

Inte

rven

tion

Logi

c: T

he W

BG

int

egra

ted

enga

gem

ent

will

con

tinue

to

focu

s on

hel

ping

citi

es t

o be

com

e m

ore

envi

ronm

enta

lly a

nd s

ocia

lly

susta

inab

le a

nd re

silie

nt th

roug

h su

ppor

ting

Turk

ey’s

“Sm

art C

ities

” ap

proa

ch. T

hrou

gh th

e in

vest

men

t coo

rdin

atio

n pl

atfo

rm b

etw

een

IBRD

and

IF

C u

nder

the

joi

nt “

Susta

inab

le C

ities

Pro

gram

”, t

he W

BG

will

mai

ntai

n a

cons

truct

ive

dial

ogue

with

the

cen

tral

gove

rnm

ent

on p

olic

y an

d re

gula

tory

cha

nges

to m

oder

nize

the

exis

ting

mun

icip

al fi

nanc

ing

and

inve

stm

ent f

ram

ewor

k, th

us p

avin

g th

e w

ay fo

r ste

pped

-up

priv

ate

inve

stm

ent

supp

orte

d by

IFC

and

MIG

A.

In p

artic

ular

, IB

RD’s

supp

ort t

o ur

ban

plan

ning

, inf

rastr

uctu

re a

nd c

apita

l inv

estm

ent p

lann

ing,

and

eff

orts

to im

prov

e m

unic

ipal

fina

ncia

l cap

acity

sho

uld

enab

le th

e W

BG to

exp

and

its s

uppo

rt to

sec

ond-

tier c

ities

, inc

ludi

ng in

fron

tier a

nd u

nder

serv

ed re

gion

s, w

ith

the

ultim

ate

goal

of e

nabl

ing

them

to s

ecur

e fin

anci

ng d

irect

ly f

rom

com

mer

cial

inve

stor

s an

d th

e ca

pita

l mar

kets

for

thei

r cr

ucia

l inf

rast

ruct

ure

need

s. Ex

pand

ing

the

avai

labi

lity

of m

unic

ipal

fina

nce

optio

ns, i

mpr

ovin

g cr

editw

orth

ines

s and

an

effe

ctiv

e m

unic

ipal

PPP

fram

ewor

k ar

e ar

eas t

hat

requ

ire c

ontin

uing

WBG

col

labo

ratio

n.

Fina

lly,

advi

ce o

n lo

w-c

arbo

n ur

ban

man

agem

ent,

clim

ate

chan

ge p

lann

ing

and

rela

ted

inve

stm

ent

iden

tific

atio

n in

maj

or u

rban

cen

ters

will

be

purs

ued,

aim

ing

to sh

are

glob

al b

est p

ract

ice.

IBRD

’s le

ndin

g po

rtfol

io w

ill c

ontin

ue to

targ

et st

rate

gic

inve

stm

ents

that

bui

ld o

n kn

own

area

s of

com

para

tive

adva

ntag

e. T

he S

usta

inab

le C

ities

pro

gram

is e

nvis

aged

as

a se

ries

of p

roje

cts,

with

new

40

proj

ects

com

ing

into

the

prog

ram

bas

ed o

n th

e re

adin

ess

of sp

ecifi

c ci

ties a

nd th

eir i

nves

tmen

t pla

ns, a

nd it

will

incl

ude

EU-f

unde

d TA

in p

lann

ing

and

polic

y an

alys

is to

hel

p ci

ties

addr

ess

envi

ronm

enta

l, so

cial

and

fin

anci

al s

usta

inab

ility

cha

lleng

es. A

n on

goin

g La

nd R

egis

try a

nd C

adas

tre

Mod

erni

zatio

n pr

ojec

t als

o co

ntrib

utes

to im

prov

ing

loca

l gov

ernm

ent f

inan

cing

and

enh

anci

ng se

rvic

e de

liver

y to

citi

zens

thro

ugh

incr

ease

d ac

cess

to

pro

perty

mar

ket i

nfor

mat

ion,

incl

udin

g va

luat

ions

. Fo

r im

prov

ing

the

resil

ienc

e of

citi

es, I

BRD

cou

ld a

lso

deliv

er a

n in

vest

men

t pro

ject

aim

ing

to st

reng

then

crit

ical

pub

lic fa

cilit

ies f

or e

arth

quak

e re

sist

ance

and

to su

ppor

t bet

ter e

nfor

cem

ent o

f bui

ldin

g co

des a

nd la

nd u

se p

lans

.

Focu

s are

as fo

r IFC

and

MIG

A in

clud

e di

rect

eng

agem

ent w

ith m

unic

ipal

ities

to st

reng

then

thei

r cap

acity

for f

inan

cial

man

agem

ent,

infra

stru

ctur

e pr

ojec

t des

ign,

pre

para

tion

and

impl

emen

tatio

n. IF

C ca

n le

vera

ge a

wid

e ra

nge

of p

rodu

cts i

nclu

ding

long

-term

loan

s (bo

th in

eur

os a

nd li

ra),

mun

icip

al b

onds

, and

hed

ging

tool

s to

help

mun

icip

aliti

es m

anag

e th

eir f

orei

gn-e

xcha

nge

loan

s. B

uild

ing

on su

cces

ses i

n Is

tanb

ul a

nd Iz

mir,

IFC

aim

s to

help

oth

er c

redi

t-wor

thy

citie

s cre

ate

a pi

pelin

e of

ban

kabl

e pr

ojec

ts, p

rovi

ding

tech

nica

l ass

ista

nce

and

capa

city

bui

ldin

g, d

irect

seni

or

loan

s (in

eur

os o

r lira

) or u

sing

a p

ortfo

lio a

ppro

ach

by c

hann

elin

g its

fund

s to

citie

s thr

ough

loca

l ban

ks.

C

PF O

bjec

tive

Indi

cato

rs

Supp

lem

enta

ry P

rogr

ess I

ndic

ator

s W

BG

Pro

gram

Im

prov

ed se

rvic

e de

liver

y an

d ex

pand

ed

acce

ss to

dig

ital l

and

regi

stry

and

cad

aste

r in

form

atio

n In

crea

sed

cust

omer

satis

fact

ion

at n

atio

nal

leve

l B

asel

ine:

85%

in 2

016

Targ

et: 9

5% in

202

1 N

umbe

r of a

dditi

onal

peo

ple

bene

fittin

g fr

om

impr

oved

urb

an in

fras

truc

ture

thro

ugh

IBRD

an

d IF

C fi

nanc

ing

(num

ber i

n m

illio

ns)

Bas

elin

e: 3

.3 (2

015)

Ta

rget

: 4.

7 (2

019)

(G

ende

r dis

aggr

egat

ed d

ata

to b

e co

llect

ed)

Incr

ease

d re

silie

nce

of c

ities

thro

ugh

num

ber

of d

isas

ter r

esili

ent p

ublic

bui

ldin

gs

retr

ofitt

ed, r

econ

stru

cted

, or n

ewly

co

nstr

ucte

d th

roug

h IB

RD a

nd F

RIT

finan

cing

B

asel

ine:

0

Targ

et: 1

10 b

y 20

21

Pilo

ts o

f mas

s pro

perty

val

uatio

n co

mpl

eted

and

ne

w p

rope

rty v

alua

tion

polic

y In

form

ed

Bas

elin

e: N

o (2

016)

T

arge

t: Y

es (2

020)

Im

prov

e pl

anni

ng c

apac

ity o

f and

acc

ess t

o ta

rget

ed

mun

icip

al se

rvic

es th

roug

h ad

optio

n of

sect

oral

, sp

atia

l and

cap

ital i

nves

tmen

t pla

ns in

four

m

unic

ipal

ities

B

asel

ine:

0 in

201

6 T

arge

t: 10

sect

oral

pla

ns a

dopt

ed in

at l

east

4

mun

icip

aliti

es b

y 20

21

Sust

aina

ble

urba

n tra

nspo

rt pl

anni

ng a

dopt

ed in

se

lect

ed c

ities

/mun

icip

aliti

es.

Bas

elin

e: 0

. T

arge

t: 2

citie

s/m

unic

ipal

ities

A

vera

ge tr

avel

tim

e (m

in) i

n ur

ban

publ

ic

trans

porta

tion

(tram

way

and

met

ro) (

IFC

) B

asel

ine:

45

(201

5)

Tar

get:

25 (2

019)

U

rban

was

te w

ater

trea

ted

by IF

C c

lient

s (M

m3 )

Bas

elin

e: 0

(201

5)

Tar

get:

4,4

70,0

00 (2

019)

U

rban

solid

was

te tr

eate

d by

IFC

clie

nts (

tons

m

anag

ed/y

ear)

Ong

oing

lend

ing:

M

unic

ipal

Ser

vice

s Pro

ject

La

nd R

egis

try P

roje

ct

New

lend

ing:

Su

stai

nabl

e C

ities

1, 2

, 3 p

roje

cts

Dis

aste

r Ris

k M

anag

emen

t pro

ject

N

ew D

PL se

ries

ASA

: H

ousi

ng st

udy

TA u

nder

the

DR

M G

FDR

R G

rant

EU

/IPA

Gra

nt fo

r Sus

tain

able

Citi

es

IFC

: C

ities

pla

tform

– a

dvis

ory

serv

ices

M

unic

ipal

infra

stru

ctur

e in

vest

men

ts in

met

ropo

litan

ci

ties i

nclu

ding

Ista

nbul

, Izm

ir, A

ntal

ya, B

ursa

and

ad

ditio

nal c

ities

com

men

sura

te w

ith th

eir

cred

itwor

thin

ess

41

Bas

elin

e: 0

(201

5)

Tar

get:

133

,000

(201

9)

Turk

ey D

isas

ter M

anag

emen

t Stra

tegy

and

Tur

key

Ris

k R

educ

tion

Plan

ado

pted

B

asel

ine:

No

in 2

016

Tar

get:

Yes

CPF

Obj

ectiv

e 9:

Incr

ease

d su

stai

nabi

lity

of in

fras

truc

ture

ass

ets a

nd n

atur

al c

apita

l

Inte

rven

tion

logi

c: I

ncre

asin

g ef

ficie

ncy

in th

e us

e of

pub

lic a

sset

s and

nat

ural

cap

ital i

s hi

ghlig

hted

in th

e SC

D a

s a k

ey d

evel

opm

ent c

halle

nge.

In

par

ticul

ar, i

mpr

ovin

g th

e ef

ficie

ncy

of e

nerg

y co

nsum

ptio

n is

criti

cal f

or T

urke

y’s c

ompe

titiv

enes

s and

sust

aina

ble e

cono

mic

gro

wth

. Th

e WB

G’s

pr

ogra

m in

ene

rgy

effic

ienc

y ha

s ong

oing

IBR

D in

vest

men

ts th

roug

h th

e SM

E En

ergy

Effi

cien

cy p

roje

ct a

nd th

e Pr

ivat

e Se

ctor

Ren

ewab

le E

nerg

y an

d En

ergy

Effi

cien

cy p

roje

ct a

s wel

l as a

bro

ad p

rogr

am o

f IFC

fina

ncin

g to

sust

aina

ble

and

rene

wab

le e

nerg

y. T

hese

pro

ject

s will

con

tinue

to b

e im

plem

ente

d w

ith f

ollo

w-o

n or

sca

led-

up p

roje

cts

base

d on

clie

nt d

eman

d, in

clud

ing

supp

ort t

o en

ergy

effi

cien

cy in

pub

lic b

uild

ings

thro

ugh

a po

ssib

le n

ew in

vest

men

t ope

ratio

n.

IBRD

is a

lso

supp

ortin

g th

e de

velo

pmen

t of c

arbo

n pr

icin

g in

strum

ents

and

mar

kets

thro

ugh

a gr

ant-

fund

ed

Partn

ersh

ip fo

r Mar

ket R

eadi

ness

(PM

R) p

roje

ct.

The

ASA

pro

gram

is su

ppor

ting

the

effic

ient

use

of w

ood

fuel

s (an

d fu

ture

step

ped-

up e

ngag

emen

t co

uld

be e

nvis

aged

) an

d a

stud

y on

how

to

finan

ce S

usta

inab

le D

evel

opm

ent

Goa

l (S

DG

) #1

2 w

hich

foc

uses

on

sust

aina

ble

prod

uctio

n an

d co

nsum

ptio

n. IB

RD’s

new

soci

al a

nd e

nviro

nmen

tal f

ram

ewor

k w

ill se

rve

as a

solid

gro

und

for f

urth

erin

g di

alog

ue a

nd b

uild

ing

in-c

ount

ry c

apac

ity

on so

cial

and

env

ironm

enta

l soc

ial s

usta

inab

ility

pol

icie

s and

ana

lytic

al w

ork.

The

WBG

will

als

o ad

voca

te a

step

ped-

up p

rogr

am in

are

as id

entif

ied

in th

e SC

D a

s im

porta

nt, s

uch

as th

e su

stain

able

use

of w

ater

and

fore

st re

sour

ces.

This

wou

ld su

ppor

t som

e of

the

mos

t vul

nera

ble

grou

ps in

Tur

key,

na

mel

y, s

mal

lhol

der

farm

ers

and

fore

st co

mm

uniti

es. I

n th

e w

ater

sec

tor,

a po

ssib

le I

BRD

irrig

atio

n pr

ojec

t is

unde

r di

scus

sion

. In

the

fore

stry

sect

or, r

ecom

men

datio

ns fr

om th

e rec

ent F

ores

t Pol

icy

Not

e ha

ve le

d to

dis

cuss

ions

of a

pot

entia

l pro

ject

. En

gage

men

t in

agric

ultu

re is

also

pos

sible

. Fi

nally

, the

WBG

is p

rovi

ding

EU

-fun

ded

TA o

n tra

nspo

rt is

sues

and

som

e of

this

wor

k co

uld

lead

to fi

nanc

ing

oppo

rtuni

ties d

urin

g th

e CP

F pe

riod.

IF

C w

ill c

ontin

ue to

sup

port

priv

ate

sect

or in

vest

men

ts in

man

ufac

turin

g, S

MEs

, mun

icip

al a

nd tr

ansp

ort i

nfra

stru

ctur

e, w

ith a

vie

w to

impr

ovin

g en

ergy

effi

cien

cy a

nd r

educ

ing

GH

G e

mis

sion

s. IF

C w

ill a

lso

prov

ide

long

-term

fun

ding

to

inte

rmed

iarie

s w

ith p

ortfo

lios

focu

sed

on e

nerg

y ef

ficie

ncy

area

s and

seek

dire

ct e

ngag

emen

ts a

t the

indu

stria

l lev

el to

hel

p re

duce

ene

rgy

inte

nsity

and

pol

lutio

n. IF

C w

ill c

ontin

ue to

exp

and

finan

ce

for r

esou

rce

effic

ienc

y bo

th d

irect

ly th

roug

h in

vest

men

ts in

man

ufac

turin

g, a

grib

usin

ess a

nd se

rvic

es se

ctor

s, an

d th

roug

h fin

anci

al in

stitu

tions

, e.g

. th

roug

h in

nova

tive

inst

rum

ents

suc

h as

gre

en b

onds

and

mor

tgag

e-co

vere

d bo

nds.

At t

he m

unic

ipal

leve

l, it

will

see

k op

portu

nitie

s to

sup

port

ener

gy-e

ffici

ent p

ublic

tran

spor

t, m

unic

ipal

bui

ldin

gs, w

ater

and

was

tew

ater

, and

stre

et li

ghtin

g pr

ojec

ts.

In a

dditi

on to

fina

ncin

g, IF

C w

ill p

rovi

de

advi

sory

supp

ort a

nd tr

aini

ng to

key

inst

itutio

ns a

nd c

orpo

rate

s to

help

intro

duce

new

ene

rgy

effic

ienc

y pr

actic

es to

Tur

key’

s res

iden

tial h

ousi

ng a

nd

indu

stria

l sec

tors

. M

IGA

rem

ains

ope

n to

exp

andi

ng it

s sup

port

to m

unic

ipal

infr

astru

ctur

e with

a v

iew

to im

prov

ing

ener

gy e

ffici

ency

and

redu

cing

ov

eral

l em

issi

on l

evel

s. In

thi

s re

gard

, MIG

A c

ould

pro

vide

cre

dit

guar

ante

es f

or m

ajor

mun

icip

al i

nfra

struc

ture

pro

ject

s, si

mila

r to

pre

viou

s as

sista

nce

to Is

tanb

ul a

nd Iz

mir.

C

PF O

bjec

tive

Indi

cato

rs

Supp

lem

enta

ry P

rogr

ess I

ndic

ator

s W

BG

Pro

gram

42

Cum

ulat

ive

ener

gy sa

ving

s ach

ieve

d th

roug

h W

BG-fi

nanc

ed e

nerg

y se

ctor

pro

ject

s (M

Wh)

. B

asel

ine:

1,1

16,0

00 in

201

6 Ta

rget

: 6,

000,

000

in 2

021

Annu

al G

HG

em

issi

ons e

ither

redu

ced

or

avoi

ded

thro

ugh

the

WBG

pro

gram

(to

nnes

/yea

r)

Bas

elin

e: 4

0,00

0 in

201

6 Ta

rget

: 84

4,40

0 IB

RD re

duce

d, 3

73,0

00

redu

ced

IFC

, 600

,000

avo

ided

at c

ount

ry-

leve

l thr

ough

ado

ptin

g G

B st

anda

rds (

2021

)

Car

bon

mar

ket p

olic

y op

tions

del

iver

ed to

and

co

nsid

ered

by

the

Gov

ernm

ent

The

follo

win

g in

dica

tors

– o

r oth

er re

leva

nt o

nes

- co

uld

be c

onsi

dere

d at

the

time

of th

e C

PF P

LR if

th

ese

area

s are

dev

elop

ed a

s par

t of t

he W

BG

pr

ogra

m:

The

Nat

iona

l Int

ellig

ent T

rans

port

Syst

ems

(ITS

) st

rate

gy o

pera

tiona

lized

B

asel

ine:

No

Tar

get:

Yes

. C

hang

es to

the

Fore

st L

aw, r

egul

atio

ns o

r pol

icie

s to

pro

mot

e gr

eate

r priv

ate

sect

or in

vest

men

t pa

rtici

patio

n in

har

vest

ing

and

deve

lopm

ent o

f pl

anta

tions

. B

asel

ine:

Min

imal

T

arge

t: 2

or m

ore

pilo

t are

as c

over

ed

Ong

oing

lend

ing:

R

enew

able

Ene

rgy

Int.

Proj

ect

SME

Ener

gy E

ff. P

roje

ct

Priv

. Sec

tor R

enew

able

Ene

rgy

& E

nerg

y Ef

f. Pr

ojec

t EU

/IPA

Ene

rgy

Proj

ect

New

lend

ing:

N

ew D

PLs

Irr

igat

ion

Reh

abili

tatio

n Pr

ojec

t Po

ssib

le fu

ture

pro

ject

s in

supp

ort o

f Tra

nspo

rt/Lo

gist

ics

and/

or S

usta

inab

le F

ores

try M

anag

emen

t A

SA:

Fore

stry

Stu

dy

CEM

on

Prod

uctiv

ity

IFC

: IF

C fi

nanc

ing

to su

ppor

t res

ourc

e ef

ficie

ncy

proj

ects

IF

C p

rovi

sion

of l

ong

term

loan

s to

finan

cial

in

term

edia

ries t

o su

ppor

t RE/

EE p

roje

cts

IF

C in

vest

men

ts a

nd a

dvis

ory

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Annex 2. CPS (FY12-FY16) Completion and Learning Review Report

CPS Board Discussion: March 27th, 2012

CPS Progress Report (Board Presentation): October 3rd, 2014

Period Covered by CPS Completion and Learning Review: FY12 – FY16

1. SUMMARY OF KEY FINDINGS

1. Turkey’s National Development Plans (NDPs) for 2007-2013 and 2014-18 formed the strategic underpinning of the CPS Objectives (FY12-15), which were: (i) Enhanced Competitiveness and Employment; (ii) Improved Equity and Public Services; (iii) Deepened Sustainable Development; and a cross-cutting objective of Sharing Turkey’s Experience – Results, Knowledge, and Capacity. In the CPS Progress Report (CPSPR, FY14), and in response to a Government request, the period of the CPS was extended to cover FY16 to allow for better alignment with the electoral cycle within Turkey.

2. Overall CPS program performance is rated Moderately Satisfactory. This rating is based on the Self Evaluation Framework, revised through the CPS PR, as most of 33 CPS outcomes indicators were either achieved or partially achieved.

3. Overall WBG performance in designing and implementing the CPS is rated Good. Collaboration within the WBG and with development partners was adequate, and the lending program was complemented by knowledge products. Combined IFC/IBRD total delivery reached $7.8 billion during the CPS period, and MIGA’s guarantee gross exposure grew to $1.695 billion in FY16. Turkey has become IFC’s second largest client globally as IFC’s own account investments in Turkey have far exceeded the expected FY12-16 program of US$2.5-2.8 billion, reaching $3.58 billion in long-term finance for its own account. During the CPS period, MIGA`s guarantee gross exposure grew from $458 million in FY13 to $1.695 billion in FY16, making Turkey MIGA’s largest exposure country, with a good product mix of traditional political risk insurance as well as the non-honoring, credit guarantees.

2. CPS DEVELOPMENT OUTCOME

4. The CPS Development Outcome rating is Moderately Satisfactory. The program was built on three strategic objectives, eight thematic areas (revised down from ten in the CPSPR), and thirty-three outcomes, of which most were either achieved or partially achieved. A thematic priority, Sharing Turkey’s Experience, cut across the three pillars but there are no indicators associated to it and it is treated in this CLR as a thematic priority rather than a measureable objective.

A. First Strategic Objective: Enhanced Competitiveness and Employment – Partially Achieved

A.1 Thematic Area 1: Sustained macroeconomic and financial stability and strengthened exports, domestic savings, and external resilience

5. Thematic area 1 outcomes are partially achieved: one of two outcome indicators was met and the other was not. The first outcome indicator involved an increase in take-up of a new voluntary pension scheme: from a baseline of 3.1 million participants in 2012 there were, by end-FY16, 6.2 million

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participants, reflecting a 100% increase. The second outcome involved a projected 10% increase in the number of tax payers filing income tax returns; it was not achieved, as it was linked to a proposed new income tax law, which has not yet been ratified. 6. The objectives of the WBG program under this result area were underpinned by a series of DPLs, albeit with delays. Two DPLs were delivered in the CPS period: the US$800 million Competitiveness and Savings DPL (FY13), and the first, US$500 million, operation of a planned two-operation Sustained Shared Growth DPL (FY15). The proposed second operation was not delivered, as two parliamentary elections (in June and November 2015) put DPL discussions on the back-burner until a new Government was in place.

7. The Bank also provided a broad knowledge program in support of Thematic area 1. Among many deliveries (listed in the results matrix), the most important were a Flagship report, Turkey’s Transitions (FY15), which was a comprehensive analysis of Turkey’s progress to the threshold of high income and contributed to the thematic priority of sharing Turkey’s experience globally, and a Country Economic Memorandum (CEM), which identified policy options and interventions to enhance Turkey’s trade performance and competitiveness. These reports were widely disseminated and unlocked a useful discussion on the importance of economic institutions for sustained growth beyond the high-income threshold. They also helped to inform the domestic policy debate, as the Government released a new batch of 25 Transformation Programs around the time that the reports were discussed in Turkey. Two technical reports also informed Government policy: a Public Expenditure Review analyzed Turkey’s fiscal policy over the previous decade and identified the broader macroeconomic implications of fiscal policy, notably with regard to supporting future economic growth; and a Customs Union Evaluation report provided quantitative and qualitative estimates of the effects of the Customs Union (CU) and demonstrated that the trade agreement has been highly beneficial for both Turkey and the EU.

A.2. Thematic Area 2: Improved investment and business climate; deepened and broadened access to finance; increased employment

8. Thematic area 2 outcomes are partially achieved. Five outcome indicators were met, one partially met, one non-verified, and two not met.

9. The indicator linked to improved intellectual property rights was not achieved within the CPS period, but the law was ultimately ratified in December 2016. Sub-indicators on (i) targeting reduced entry barriers and improved intellectual ownership were not met because, by end-FY16, there were only 5,512 new patent applications (against a 2013 baseline of 5,600). The indicator on (ii) the number of registered companies in the company regulation system (MERSIS) could not be verified due to the non-public disclosure of data against a 2012 baseline of 204 companies registered.

10. By contrast, sub-indicators associated with improving access to finance by the private sector were mostly achieved. The sub-indicators (iii-iv) measuring the performance of firms benefitting from IBRD financing showed better performance of export and sales growth. Indicator (v), on the percentage of women saving at financial institutions in past years, exceeded the target value of 3.3%, reaching 5.5% by end-2015. However, (vi) a targeted increase in corporate bonds issuance was not achieved due to contraction in the market, and a sub-indicator focused on (vii) better performing non-performing loan (NPL) ratios for financial institutions (FIs) supported by IBRD had mixed results. At the same time outcome indicators linked to the IFC program were fully achieved as IFC (viii) reached about 760,000 SME clients and about 112,000 additional farmers and also generated about 66,000 direct jobs, against targeted 70,000.

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11. The Bank delivered the 2013 and 2015 DPLs as well as a series of projects using credit lines as bridge funding to the banking sector to lengthen the maturity of funding and widen the range of instruments available to SMEs, exporters, and other target sectors (such as renewable energy and energy efficiency). Advisory Services and Analytics (ASA) informed the design of these projects and covered such issues as consolidated supervision and bank resolution, capital market development (jointly with IFC) on corporate bonds, mutual funds, pension funds, support for microfinance, financial inclusion, and financial sector infrastructure, especially in secured transactions and in the insurance sector to strengthen solvency supervision. 7

12. IFC’s contribution included the use of securitization structure to increase the depth and competition of the banking sector and to support corporate clients. In the previous CPS period (FY08-11), IFC worked with Akbank to revive the Diversified Payment Rights (DPR) asset class in Turkey. After that first successful project, Finansbank, Yapi Kredi Bank, Denizbank and Garanti Bank launched similar programs supported by IFC, with the proceeds of the DPR issuances being used for on-lending to agribusiness, MSMEs and sustainable energy projects. DPRs have since become a critical instrument for raising long-term capital for Turkish banks due to their strong credit structure and reliance on offshore cash flows. IFC worked directly with Turkish corporates to help companies access capital market financing. It served as an anchor investor in the $450 million Eurobond issued by Mersin International Port, Turkey’s first single asset infrastructure Eurobond.

13. Knowledge on job creation and the investment climate was generated through programmatic TA on human development (FY12-13), a programmatic job series (FY12-15), competitiveness analysis (FY14), innovation and business climate (FY15), and a value chain trade, services, and logistics programmatic series starting in FY15. The Regional Investment Climate Assessment (RICA) project, funded by EU Instrument for Pre-Accession (IPA) funds as the first Reimbursable Advisory Service (RAS) related output in Turkey, also completed an enterprise survey at the regional level by September 2016.

A.3. Result Area 3: Improved governance through enhanced transparency to ensure a level playing field

14. This outcome was fully achieved. A Council of Ministers decision in March 2016 reduced the threshold establishing auditing requirements for companies. Thanks to the new threshold value, the number of firms with independent audits by end-2016 is expected to exceed 5,000, against a target of 3,500 (2013 baseline, 2,500).

15. The WBG supported this thematic area through DPLs and knowledge products funded through Trust Funds Relevant ASA (listed in the result framework section) included TA on building capacity for the Parliament; strengthening the public internal audit function; enhancing the supreme audit function of the Courts of Accounts, justice sector performance; and governance. In addition, the Bank completed a Transport Sector Public Expenditure Review.

16. In 2013, IFC collaborated with the Turkish Corporate Governance Association (TKYD), the only local provider of corporate governance-related services in the country. In particular, it helped three

7 These projects were Access to Finance for SMEIII (FY13), followed by the Innovative Access to Finance Project (FY15), and MSME and Large Enterprise Supply Chain Project (FY16); as well as energy sector credit lines for SME Energy Efficiency (FY13) and Additional Finance for Private Sector Renewable Energy and Energy Efficiency (FY12). The Long Term Finance Guarantee Project, proposed to be delivered in FY15, was dropped.

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companies to assess their corporate governance systems practices; provided trainings to TKYD member companies; and helped TKYD to develop corporate governance advisory services as a commercial product. In addition, IFC helped 13 of its biggest investment clients to improve corporate governance.

17. Although the modest objective under this thematic area was achieved, engagement between the WBG and Turkey could have been broader. According to the SCD findings, weaknesses in corporate governance reduce firms’ ability to access new markets, technology, and finance. In particular, weak accounting standards constitute an important obstacle to accessing financing. Similarly, Turkey is losing ground to peer countries in indicators related to the business climate, as reforms have slowed since 2008.

B. Second Strategic Objective: Improved Equity and Social Services - Partially Achieved

B.1 Thematic Area 4: Improved quality and equity of social services

18. Result area 4 outcomes are fully achieved, as all three indicators were met. (i) The Ministry of Health was reorganized to focus exclusively on the health sector’s stewardship functions by 2015; and (ii) all public hospitals were organized under public hospital unions paid on the basis of performance contracts within a global budget. In addition, (iii) cervical cancer screening among women aged 20 to 69 increased by almost 83%, against a target of 30%.

19. The outcomes of thematic area 4 were underpinned by the Bank’s Health Sector Reform Support project as well as IFC and MIGA financing of health campuses constructed through PPP schemes. The Bank delivered a follow-up health operation (US$134 million) in FY16. In addition, IFC invested US$172 million and mobilized US$256.5 million to support three pioneering PPP projects in the healthcare sector, aiming to build three modern health campuses (with a total capacity of 7,000 beds) and improve the service quality and efficiency of public health services. IFC also invested US$30 million in a leading company in molecular imaging and oncology treatment services. During the CPS period, IFC reached 3.2 million patients through its health sector portfolio companies.

20. The outcomes were supported by a wide range of ASA, including TA on pharmaceuticals systems management, economic sector work on performance-based contracting in family medicine and TA support on sharing Turkey`s health sector reform experiences with other countries. The engagement on the education sector was fully realized through TA on improving educational outcomes and promoting excellence in Turkish schools, plus the ongoing engagement on higher education sector efficiency and improvement.

B.2. Thematic Area 5: Progress toward gender equality and inclusive labor markets

21. Thematic area 5 outcomes were partially achieved: although there was progress against all three outcome indicators, only one was met, one was partially met, and one was non-verified. IFC helped increase women’s labor force participation by supporting 2,600 women-owned SMEs and it also partnered with the International Women Directors Network to help increase the number of women on corporate boards. An indicator on helping at least 20 companies to achieve Gender Equity Certification was not fully achieved, though 17 were helped. Finally, it was not possible to verify improved access for social assistance (SA) beneficiaries to active labor market programs, as measured by the number of people enrolled in ISKUR programs, due to data collection shortcomings.

22. Country-level performance in this area included an increase in female labor force participation from 27.6% in 2010 to 31.5% in 2015, though it fell short of a target of 32.6%. At the same time, the

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coverage of ISKUR`s vocational training rose from 210,000 in 2010 to 465,000 in 2012, but fell to 335,000 in 2015. Turkey’s medium-term challenge, to boost the participation of youth and women in the labor force, still remains, as the OECD average female labor force participation rate is 65 percent.

23. The objectives of thematic area 5 were mainly supported through ASA and the DPLs. The Sustained Shared Growth DPL I (FY15) helped to improve female labor force participation, but the delay in delivering the follow-up DPL hampered progress. The Bank mobilized a SIDA Trust Fund which supported a broad analytical program for increasing women’s access to economic opportunity, and it also provided TA to the Ministry of Development on subnational poverty dynamics. In addition, when Turkey began to flood with almost three million refugees (making it the largest host country in the world), the Bank analyzed the identification and quantification of their impact on urban areas in southeastern Turkey, government relations, labor markets, and pressures on public services and host communities.

C. Third Strategic Objective: Deepened Sustainable Development – Partially Achieved

C.1. Thematic Area 6: Improved supply of reliable and efficient energy, increased use of renewable energy sources and climate actions under implementation

24. Thematic area 6 outcomes were achieved. Four of five outcome indicators were met, and one was partially met. Turkey continued its solid energy sector reform program satisfactorily while expanding its renewable energy generation capacity. The supply of reliable and efficient energy was improved by reaching 73,000 MW generation capacity, representing a 24,000 MW increase since end-2010. The percentage of renewable electricity generation in total generation reached 31.5% by end-2015, against a target of 30%. Through its power generation/distribution portfolio companies, IFC reached about 7.5 million electricity customers, against a target of 7.2. Moreover, Turkey`s energy security improved, as the end-2016 target to increase gas storage capacity by 19% is being reached, thanks to satisfactory implementation of the IBRD-financed Gas Sector Development Project. Successful implementation of the Gas Sector Development Project prompted preparations for a new IBRD-financed project aiming to further expand Turkey’s gas storage capacity.

25. By contrast, cumulative energy savings, which aimed to reach 4,372 GWh or 1.5% of 2013 total annual demand by 2016 through IBRD-financed projects in SME Energy Efficiency (EE) and Renewable Energy (RE) credit lines, has reached just 3,772 GWh. Besides other reasons (such as low intermediary bank capacity on EE and an under-developed EE services market), failure to meet the target is due partly to an inability to capture EE investments under the intended credit lines: while some SMEs borrowed to buy machinery which is energy efficient, they did not use SME EE/PSREEE project funds in order to avoid the hassle of producing documentation to prove higher energy efficiency.

26. Achievements under this thematic area deserve particular attention. The WBG deployed almost all types of available instruments, achieved strong donor coordination, and mobilized substantial external finance. The Energy Sector Technical Assistance Program, financed by the EU/IPA, supported Turkey’s alignment with the EU Energy Policy. Clean Technology Funds (CTF) grants and concessional loans exceeding US$150 million co-financed IBRD lending operations. The Partnership for Market Readiness (PMR) project is supporting Turkey’s work on setting up a greenhouse gas monitoring, reporting and verification (MRV) system for the power and industrial sectors, and analyzing the various market-based and other GHG mitigation policy options that Turkey may introduce: Turkey was the first country to start implementing a PMR project and it has already shared its experiences on, e.g., its MRV system with peers in the PMR forum.

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27. IFC`s private sector financing provided a significant contribution to achieving targets in this area, as it invested US$659 million in six power generation projects and US$163 million in one power distribution project, supporting generation of nearly 17,000 GWh per year. In addition, to reduce Turkey’s dependence on imported gas, IFC invested US$40 million in an emerging Turkey-based Oil-field Services Company expanding its operations domestically, and US$50 million in the largest private sector oil and gas producer in Turkey, to expand its oil and gas production from the frontier provinces in southeastern Turkey. Finally, through its financing in both financial and real sectors, IFC supported a number of climate change related projects. IFC provided roughly $300 million to FIs targeting renewable energy and GHG emissions: specifically, it provided US$96 million to Yapi Kredi Leasing in sustainable energy finance; US$150 million to the TSKB to finance projects that reduce GHG emissions, improve waste management practices, and increase efficiency of raw materials for processing and manufacturing; and US$35 million to Is Leasing, co-financed by CTF, to promote energy efficiency and renewable energy projects in various sectors in Turkey through a wholesale approach In the real sector, it financed EE projects including in the cardboard industry, textiles, agribusiness, and packaging film industry as well as solid waste and wastewater treatment, construction, public transport and healthcare campuses. In FY16, IFC invested $100 million equity in Akfen Enerji, a renewable energy platform company with a portfolio of operational hydropower and solar projects of 211MW and an additional 178MW under construction and development.

28. Like lending support, ASA was diverse and innovative while managing to mobilize external funds to finance the products. An Energy Reform Milestones and Challenges (FY15) report captured the success and lessons learnt through sector reform, not only supporting the Turkey program but also serving as a global knowledge product to share the Turkish experience. ESMAP funded an Institutional Review of Energy Efficiency (FY15), Social Monitoring of the Energy Sector (FY14), TA on the electricity market (FY12) and an ongoing analysis of distribution companies. It is important particularly to emphasize the EU/IPA-funded Energy Sector TA studies, under RETF modality for the first time introduced in Turkey, which helped the primary energy sector counterpart, MENR, to improve its analytical capacity as well as to receive high quality advisory services.

C.2. Thematic Area 7: Strengthened environmental management and adaptation to climate change

29. Thematic area 7 outcomes were partially achieved, as two of three indicators were met and one was not. The indicator linked to (i) Improved Water Basin Management through preparation of protection action plans for Turkey’s 25 river basins, taking into account principles of the Water Framework Directive, was achieved through policy support provided under the ESES DPL. The CPSPR-introduced indicator (ii) targeting the completion of a draft Integrated Water Basin Management plan and establishment of a Basin Commission in a selected pilot basin, was achieved. However, the other indicator introduced at the CPSPR, viz. targeting the establishment of Natural Capital Accounts in two selected water basins, was not met as it was discovered that more support was needed for valuation of natural resources prior to establishing natural capital accounts. WBG support came through ASA and was fully devoted to valuation methodology and two case studies to prepare the foundation for establishing natural capital accounts at a later stage. Two World Bank publications - one on forest and the other on water valuation methods – were prepared with the support of MoFWA and delivered to relevant government agencies. As part of the umbrella TA on natural capital, the forestry component included the development of a Forest Policy Note (FPN) and socio-economic survey of forest villagers with the Directorate General of Forestry (DGF) in the Ministry of Environment and Water.

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30. Country-level performance was impacted due to persistent delays in the ratification of the water law intended to improve adaptation to climate change through enhanced water resources management. Accordingly, River Basin Management Plans, including climate change adaptation measures for water basins, were not completed. However, it is noteworthy that a newly approved regulation on ‘Environmental Permits and Licenses’ sets the facilities to obtain an integrated ‘e-permit’ (2,394 issued as of 2012 and 3,222 by end 2013) as well as the hiring of an environmental officer who is responsible for the environmental permitting process for the facility.

C.3. Thematic Area 8: Improved sustainability of Turkish cities

31. Thematic area 8 outcomes were partially achieved, with three of seven outcomes indicators fully met, three partially met, and one not met. A seismic risk mitigation target was achieved, as 806 public buildings in Istanbul were retrofitted or reconstructed to resist a major earthquake, compared to a target of 763. Likewise, the customer satisfaction rate for Land Registry services achieved 90% against a target of 85%. In addition, an additional 2,000,000+ people in cities financed under the Municipal Services Project gained access to enhanced urban services, e.g., water supply, sewerage, and solid waste management, against a target of 800,000. Finally, governance was improved in six municipalities through performance improvement efforts and competition among local public administrations to receive a higher Citizen Report Card rating, with the use of EU funds.

32. IFC linked outcome indicators were also partially achieved. Some 277,000 weekday riders benefitted from the new Istanbul Kadikoy/Kartal metro commuter link in the first half of 2016 (against targeted 419,000). While the Izmir electric tramway project and improved traffic management system are still under construction; they are on track to reach the target of enabling an additional 240,000 people to have access to transportation by 2018. Finally, the reduction of untreated wastewater discharge into the Aegean Sea through an expansion of the IFC-financed Izmir Waste Water Treatment Plant was not met, due to a delay in construction, but results are expected to be reached in 2017, as the project becomes operational by end-2016. in addition, the Bank completed implementation of a railways project while also supporting the de-bundling of TCDD (achieved in mid-2016).

33. A major driver of success under thematic area 8 was pre-CPS approved IBRD and IFC financing that disbursed relatively smoothly during the CPS period. However, there have been setbacks with successor projects; for example, the Sustainable Cities project was not delivered until mid-FY17and the National Disaster Risk Management project is still under preparation.

34. To improve development prospects for Turkish Cities, the WBG launched in 2015 a Joint Implementation Program (JIP) for sustainable cities. The objective was to promote provision of a seamless package of complementary IBRD-IFC advisory services and financing to encourage uptake of sustainable development solutions by Turkey’s cities. IFC’s work on sustainable cities has been a strong success. IFC invested in Izmir and Istanbul, both of which have strong credit histories and are in a position to access market-based finance at commercial rates, and developed strategic client engagement partnerships with these municipalities. IFC also launched the ECA Cities Platform, a first of its kind project development facility that is designed to help municipalities increase their pipeline of bankable projects, by funding technical studies on technology options, environmental and social risks and different financing options. IFC used this facility in Istanbul, Izmir, and Antalya to support infrastructure project development. IFC also invested in a novel green mortgage finance program with a commercial lender, Odeabank, through a credit line to promote the construction and sale of green residential properties; and it supported the construction

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of green hospitals in Kayseri, Adana and Ankara. Lastly, IFC provided TA to Government and private sector actors in promoting green housing.

35. Bank support in this area was through ASA and Trust Funds. An Urbanization Review was prepared to share the successful urbanization process in Turkey and to provide policy recommendations that the Government is using for addressing critical challenges of city competitiveness, housing markets, urban transport, municipal finance, and interagency cooperation. The Bank also helped build the capacity of Turkey’s National Emergency and Disaster Management Agency (AFAD) through a US$1.5 million grant from the Global Facility for Disaster Reduction and Recovery (GFDRR) in 2015. In addition, a Municipal Credit Worthiness Academy was conducted with participation of 25 of 30 metropolitan municipalities, funded by PPIAF and Korean Green Growth Funds. Regarding the transport sector, Ministry of Transport as well as TCDD have prioritized (to be funded under EU/IPA funds) a TA program for urban transport, ITS and intermodal transport.

D. Cross Cutting Thematic Priority: Sharing Turkey`s Experience – Results, Knowledge and

Capacity

36. Knowledge sharing opportunities were developed in the second half of the CPS period. The Bank’s flagship report, Turkey’s Transitions, analyzed Turkey’s progress to the threshold of high income, identified the fundamental sources, unlocked a useful discussion on the importance of economic institutions for sustained growth and served as a useful means to share Turkey`s development story. Similarly, the urbanization review was used to disseminate Turkey`s vast experience on urbanization, triggering the Governments of Afghanistan, Morocco, and Tunisia to visit Turkey to learn more about its experience. In addition, health and energy sector knowledge products were able to capture milestones and challenges of successful sectoral reforms implemented in Turkey.

37. IBRD lending operations also triggered south-south cooperation between Turkey and other countries. The achievements of the Istanbul Seismic Risk Mitigation Projects were disseminated in more than 40 countries in various events. Land Registry and Cadaster Project achievements were introduced to more than 10 country missions to Turkey, and TKGM hosted (with Bank support) the World Cadaster Summit 2015 in Istanbul, which was a high-profile international event attracting some 3,300 cadastral and related professionals and organizations from 92 countries.

3. WORLD BANK GROUP PERFORMANCE

38. The World Bank Group’s overall performance is rated good. The assessment is based on (i) continued relevance of the CPS objectives with Turkey`s national development objectives, as well as effective use of mid-course revision through the CPS PR to align with the country`s evolving needs and challenges; (ii) robust and effective implementation of the program, through pro-active measures, which resulted in high disbursement ratios; (iii) the proactive and constructive dialogue carried out with Turkish authorities and other stakeholders to respond in a timely manner to evolving country needs and to mitigate risks as appropriate; (iv) strong internal coordination among WBG institutions; and (v) the successful focus on effective coordination with other IFIs and the EU to boost development impact. However, performance was also challenged by: (i) cancellations and delays in delivering key IBRD lending operations; (ii) delayed decision–making due to the 2015 electoral cycle; and (iii) uneven linking of operations with WBG outcomes under some thematic areas, making it difficult, in certain instances, to measure the impact of WBG support.

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Design

39. The CPS objectives remained relevant to Turkey`s development agenda. The initial CPS objectives were aligned with the Ninth Development Plan (2007-2013) and remained highly relevant to Turkey`s Tenth Development Plan (2014-2018). The CPS pillars were mutually reinforcing and linkages across thematic areas were strong.

40. The WBG engagement was flexible, and the CPS PR was used as an opportunity to respond to evolving circumstances. The extension of the CPS during the CPS PR to cover FY16 was appropriate, given that 2015 was subject to a protracted electoral cycle that would impact implementation progress, and it was used effectively to enhance the focus on addressing remaining pockets of poverty and vulnerability. The CPS thematic areas were tightened from ten to eight at the time of the CPS PR.

41. The program maintained selectivity and focus on the lending side, albeit less so on the non-lending side. In line with the CPS objectives, the lending program remained focused on SME financing, renewable energy and energy efficiency, and urban development. In keeping with the Bank’s approach in Turkey (and many other MICs) of providing a broad knowledge program, the ASA program was designed to provide global knowledge to the Government in areas where there was demand for partnership, and also targeted at building the knowledge base in other areas to pave the way for future engagement. That said, the non-lending portfolio was spread quite broadly, potentially rendering the impacts less measurable. This implies more opportunities to improve cooperation with the government to design the future ASA program.

42. The CPS PR identified critical economic, political and regional risks that ultimately materialized to some degree. Mitigation measures, such as proactive portfolio management and enhanced communication and outreach strategies, helped manage risks so that their impact on realizing the CPS objectives was reduced. A CPS Steering Committee, chaired by the IBRD Country Director and the Undersecretaries of the Treasury and of the Ministry of Development, helped to guide the program, tackle implementation challenges, and take decisions that have significant bearing on the future of proposed projects. The risk that reform would lag was identified at the time of the CPSPR, and the delivery of the DPL series was adapted accordingly. Even unanticipated regional risks, arising from the large influx of Syrian refugees from 2012 onwards, were effectively incorporated into the program through the Bank providing knowledge support on the identification and quantification of the impact of the Syrian refugee crisis on host communities.

43. The CPS result matrix set out measurable targets. Thematic areas (such as energy, health and urban development) that were supported by lending operations tended to demonstrate clear linkages between WBG operations and outcomes realized. In result areas predominantly supported by ASA, the link was less directly apparent. In certain instances, WBG outcomes were expressed in terms of legislative acts of Parliament rather than the effects or changes those laws were intended to bring, and in some important cases the legislative acts had not been completed by the end of the CPS period (e.g., the proposed patent law, income tax law, and gas market law).

Implementation

44. New IBRD lending reached US$4.3 billion. The original CPS target of US$4.5 billion for FY12-15 was revised upwards at the time of the CPS PR to US$6.5 billion for FY12-16, mainly because the single borrower limit had been lifted. However total IBRD delivery reached US$4.3 billion during the CPS period,

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allocated in 12 projects, mainly because delays in reaching final decisions on new lending resulted in dropping or slipping operations. A proposed US$300 million Long-Term Finance Guarantee project and a US$50 Water Basin Management project were both dropped, and delays impacted the second DPL under the Sustained Shared Growth series (US$500 million), the Geothermal Development Project (US$250 million), and the Sustainable Cities Project (US$133 million). The main reason behind these slippages were three:

i. Project designs that challenge the administrative and legal framework of the client and under-

estimate the potential impact of such designs on future implementation. ii. Slow intra-governmental decision-making, mostly due to a protracted electoral cycle, but

sometimes due to weak ownership of projects; iii. Poor alignment of Bank and Government administrative and procedural requirements for IPFs;

and iv. Challenges in communicating the value-addition of IBRD financing in the face of ministerial

ambivalence. This is because, from the perspective of a line ministry, an IBRD loan does not result in a real financial addition to the line ministry’s budget (IBRD funds generally substitute for budget that the Ministry of Finance would otherwise have provided to the line ministry) while IBRD lending adds complexity in the form of learning about and using IBRD procedures.

IBRD aimed during the CPS period to increase the composition of IPF lending in the Bank’s program, where such partnership could be especially effective because IBRD could bring knowledge and implementation support in addition to financing. However, because IPFs proved difficult to prepare, the Government continued to show a preference for lines of credit and DPLs. New IPF lending for the past eight years has tended to be concentrated in additional financing and in sectors where IBRD is already active and well-known, since in these circumstances most implementation problems will already have been resolved. By contrast, efforts to exploit new lending opportunities tended to encounter multiple difficulties over time, and often ended without success. In some of these cases, IBRD’s project preparatory work (due diligence, project design, etc.) opened a path for other IFIs and partners to provide financing because those partners recognized the rigor and relevance of Bank project preparation and because the Government found the other IFIs had lower financing costs or less demanding requirements. This situation meant that IBRD played an important convening and leveraging role for other development partners, while sometimes not ending up as one of the financiers.

45. During the CPS period, IFC invested a record of US$4.55 billion - of which US$3.58 billion was for IFC’s own account and US$973 million in mobilization. During the CPS period, IFC`s financing, including mobilization, was allocated in 84 projects8, focused on energy, municipal and transport infrastructure, financial institutions (with emphasis on energy efficiency), access to finance for SMEs and women entrepreneurs, deepening of capital markets, private health and education, and enhancing the competitiveness of Turkish firms including their expansion to other emerging markets. Through its investments IFC continued to offer longer maturity, higher environmental and social standards, better corporate governance and global knowledge. This strong performance was the result of increasing financing to both new and existing clients. In line with its strategy, IFC has focused its advisory services assistance to firm-level supporting the pipeline and portfolio companies.

8 27 projects in Financial Markets (US$ 1.59 billion), 19 in Infrastructure (US$ 1.54 billion), 29 in Manufacturing, Agribusiness, and Services (US$ 1.26 billion), and 9 in Media, Technology and Telecoms (US$ 169 million).

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46. MIGA`s guarantee gross exposure grew from $458 million in FY13 to $1.695 billion in FY16. MIGA intervention helped mobilize foreign private financing in support of strategic areas of the economy, such as healthcare, the financial sector and the transport sector. Turkey is MIGA’s largest exposure country; the product mix includes traditional political risk insurance as well as the non-honoring, credit guarantee product. Joint IFC-MIGA business development resulted in MIGA's US$347 million in guarantees to five new projects, benefitting also from IFC's financing, in municipal infrastructure and healthcare.

47. IBRD portfolio implementation reached record high disbursement ratios throughout the CPS period. Intensive portfolio monitoring resulted in early detection of problems. The disbursement ratio, except for FY14 when it dipped to 20%, remained above 30% so that almost one-third of available IBRD resources was disbursed in each fiscal year, due in part to the application of a newly-established intensive follow-up mechanism in FY14.

Table 1: Selected IBRD Portfolio Indicators for Turkey (FY12- FY16)

FY12 FY13 FY14 FY15 FY16

Number of Active Projects 11 12 12 12 10

Net Commitments (US$ml) 4,742 5,763 5,078 4,310 3,899

Disbursement Ratio (investment) 36% 37% 20% 36% 31%

Proactivity Index9 67% 100% 100% 100% 100%

% Projects at Risk 6% 17% 17% 8% 0%

% Commitments at Risk 7% 11% 14% 4% 0%

% Problem Projects 9% 17% 8% 8% 0%

48. The IBRD portfolio became further concentrated while contracting almost 25% in volume. The joint impact of (i) delayed delivery of new operations and (ii) fast disbursement of active projects reduced the active portfolio from US$5.5 billion to US$3.9 billion. This concentration of the portfolio helped Bank and Government teams focus on implementation challenges while mobilizing timely and sufficient resources for critical issues in safeguards, procurement, and financial management. With experienced PIUs, additional finance to existing operations with retroactive financing emerged as a preferred option. 49. IFC’s committed portfolio at the beginning of the CPS period stood at US$2.3 billion (own account), while at the end it increased to US$3.8 billion. The portfolio is further diversified, with financial markets operations decreasing from 48% in FY12 to 41% in FY16, infrastructure increasing from 27% to 34%, manufacturing, services and agriculture portfolio falling from about 22% to 20%, and media, technology and telecommunications increasing from 3% to 5%. The quality of the portfolio also improved, as NPLs decreased from $68.6 million at the beginning of the CPS period to $15.3 million at the end of FY16 (or from 3.9 percent to 0.6 percent of the outstanding loan portfolio).

50. Analytical work allowed the WBG to provide knowledge in priority areas supporting a wide range of Turkey’s development challenges. The Bank responded to client demand for partnership in delivering global knowledge and analytical work. The need for further ASA prioritization was identified in the CPSPR and, as a result, programmatic ASA was introduced to keep strategic focus. Given Turkey’s size and progress towards high middle-income status, the development challenges are sophisticated and 9 The share of portfolio IBRD/IDA/RETF projects in “actual” problem status 12 months ago that had a proactivity action in the last 12 months, divided by the total number of problem projects from 12 months ago.

54

require deep, tailored, cross-sectoral analysis. This implies more resources to diagnose the situation and offer policy solutions. Moreover, a more compact, selective, and output-based ASA program determined in consultation with the Government will increase the value of Bank analyses and introduce significant cost benefits. Another challenge faced in ASA was uneven access to data: in some cases, analysis was based on publicly available data only while, in other cases, institutions were either not authorized to share data or did not share it because they believed it to be unreliable.

51. IBRD addressed resource constraints on the knowledge portfolio by mobilizing supplementary external resources. During the CPS period, innovative non-lending activities, including an EU/IPA-funded RAS on Regional Investment Climate Assessment (RICA, FY15), EU/IPA-funded RETF for Energy Sector Technical Assistance (FY15 and FY16), EU-funded TF for Customs Union Evaluation (FY14), and SIDA-funded TA on Women`s Access to Economic Opportunities were introduced to support new business lines. Also, EU/IPA-funding has been secured for a forthcoming transport sector BETF and a Municipal Sector RETF (both currently under preparation). RICA is the first example of a RAS output in Turkey, but because of its peculiar structure, it does not constitute a replicable model for all area and institutions. As a consequence, IBRD has not yet succeeded in developing a full-fledged RAS program in Turkey, though progress is being made to overcome IBRD and government differences over key provisions (related inter alia to official language, sole-sourcing, and dispute resolution). A draft RAS Framework Agreement prepared for the Steering Committee`s review, intended to resolve key provisions, was not able to proceed for approval. It is expected that the Bank will lead efforts to resolve pending legal complexities in the draft PPP RAS agreement. .

52. A Bank-IFC Joint Implementation Plan (JIP) on sustainable cities has not yet fully realized its intended results. On the IFC side, there was good progress in advancing investments in urban infrastructure, but on the Bank side delivery of the Sustainable Cities operation was delayed to end-2016, so the full impact of a joint IBRD-IFC approach has not yet been felt. However, joint energy sector interventions, although not designed through a JIP, have proven to be very satisfactory, suggesting the potential, going forward, for enhanced strategic engagement between IFC and IBRD.

53. Donor coordination was strong. Effective coordination with the EU while introducing BETF, RETF and RAS modalities (through the IPA instrument) represented an important milestone that offers significant potential for the next CPF period. The Syrian refugee work is a key focus of this strengthened partnership. Furthermore, cooperation established with EBRD on Energy Sector TA, AFD on the municipal sector, EIB and AIIB on the TANAP operation, GIZ on the PMR project, and SIDA on the gender agenda represent the new frontiers of Bank Group donor coordination in Turkey.

4. ALIGNMENT WITH CORPORATE GOALS

54. The revised CPS program is closely aligned to the WBG’s goals of supporting poverty reduction and boosting shared prosperity. Although the original CPS was prepared prior to the adoption of the WBG twin goals, its objectives partially focused on enhancing the socio-economic condition of key target groups through the labor market activation of women and youth (as part of Objective 1), as well as early childhood development and the development of the private sector gender equity certification program (as part of Objective 2).

55. The CPS PR provided a succinct analysis of the significant progress made in Turkey from 2003-11 in tackling poverty, principally through increased employment and enhanced private sector

55

earnings. It also identified key remaining challenges associated, for example, with the adequacy of social protection in a context of economic volatility, the rural/urban divide, female participation in the labor force, and inter-generational inequality. The PR noted that these and other issues would merit closer study in the context of the forthcoming SCD and, as such, it committed to undertaking analytical work designed to fill information gaps to validate the alignment of the Bank Group’s activities with the twin goals over the remainder of the CPS.

56. During the CPS Design stage, the Strategic Framework for Mainstreaming Citizen Engagement (CE) in WBG Operations was not in place. However, after adoption, three of five new lending operations during the CPS period were CE-complaint. Among the existing CPS-level CE-linked indicators, “performance improvement efforts and competition underway among local public administrations to receive higher rating based on Citizen Report Card” and “Customer satisfaction rate for Land Registry services improved” were fully met and even surpassed.

5. MAIN LESSONS LEARNT

57. The articulation of a WBG CPS facilitated a coordinated approach at the strategic level. The size of IFC in Turkey is very large relative to other countries so a coordinated WBG approach is naturally more important and tangible. The results achieved under the CPS were better in those areas where IBRD, IFC and MIGA worked in parallel, where results indicators were aligned to their operations, and where there is concentrated engagement in a sector utilizing a range of available lending and non-lending instruments. WBG success in the energy sector is demonstrative of the type of strategically focused, coordinated approach that will be likely to generate further success over the course of the forthcoming CPF.

58. CPS objectives were well aligned with Turkey’s development objectives, but the results framework could have been more robustly framed, and could have presented indicators that demonstrated clearer links between the program and planned outcomes. This is challenging, given the relative scale of the Turkish economy and the difficulties in attribution of the Bank Group’s program to results achieved. Going forward, enhanced efforts will be required more sharply to focus the results framework for Turkey’s new CPF and create clearer understanding of attribution to results of the program.

59. Success requires long-term engagement that has carefully sequenced interventions from different players. For example, the Bank’s knowledge and DPL work set the stage for the enabling environment and overall strategic framework for certain sectors (e.g., energy). This was then followed by a stepped-up IFC engagement with private sector partners in those sectors. Moreover, the Bank’s convening role was clearly effective, given that other financial partners were sometimes able to step into a maturing sectoral framework with support for the public sector, sometimes leaving IBRD out of the actual financing.

60. The IFC program showed the importance of building a longer-term relationship with the private sector. Transforming the Istanbul IFC office from a regional hub into IFC’s first operations center by centralizing senior staff and management in close proximity (including the Regional Vice President, the Regional Industry Directors and Managers and the head of Advisory) helped IFC to respond quickly to market opportunities in Turkey and generate strong investment and development results which paved the way for solid success.

61. Given that IBRD lending involves administrative complexity, does not increase ministerial budgets, and requires the extensive use of non-government (i.e., IBRD) systems, new IPF lending will

56

remain challenging in Turkey. The Government prefers to commit to operations that guarantee smooth implementation in terms of legislative compliance and make use of domestic procurement and financial management systems. Initiating new IPF lending in this environment necessitates a careful assessment and validation of government ownership during the early stages of project preparation. This implies that project preparation often involves considerable time. Overall, these constraints suggest a need for a selective, persistent, and supportive engagement with a view to building trust and demonstrating potential value added in pursuit of desired development outcomes. This also obliges the World Bank Group to understand very well the Turkish context and the client’s own budgetary and public sector management processes and laws.

62. Given the great effort required to develop new IPFs in Turkey, the Bank should focus on sectors where it is already engaged and on projects where expressed client demand is very high (e.g., TANAP). In the second half of the CPS period (FY14-16), IBRD delivered four IPFs, two of which used additional financing. Three other projects, which were planned for the CPS period, were approved with delays, within the six months immediately following the end of the CPS period. All of these deliveries were in sectors where the Bank was already active with an investment operation: The Bank was not able to deliver new IPFs in new sectors with new innovative approaches in the implementation process. While this experience resulted in a more selective lending program, it risks being too selective going forward. If the Bank wants to evolve its program in Turkey to address development priorities, it needs to recognize that there will be a significant up-front cost of engaging – selectively and deliberately – in new sectors through IPF and that the timeframe for delivery will be lengthy and ultimately will involve a high degree of uncertainty. At the same time, it will be important accurately and comprehensively to assess client demand and avoid a trade-off between design innovation and implementation to help reduce up-front costs and future uncertainty. It will also be important for IBRD to articulate to a proposed government partner what additional value IBRD brings when it participates in lending, why higher financing costs may be justified, and how IBRD safeguards may improve development outcomes over the longer term. That said, the Bank will not be able to make a convincing case for IBRD financing in all areas where the Bank would like to contribute to achieving development outcomes in Turkey, and so a concentration on analytical work, policy advice, DPLs and credit lines is likely to persist. The introduction of PforR in the Turkey portfolio to address the IPF procedural complexity may be part of the solution for the new CPF period.

63. The WBG needs more strategically to manage its knowledge and ASA agenda, such that it is demonstrably more demand-driven with proven ownership. The challenges encountered during the CPS as regards access to data and dissemination of reports show that there have been examples where the client was not fully on board with the knowledge work or did not want to commit publicly to World Bank recommendations. This could have been better managed through more carefully defining the scope of the work at the outset, based on strongly-agreed priorities and areas of focus, especially at higher levels of authority within the Government. In the future, the knowledge program could have a more concerted focus, perhaps through delivering fewer more targeted reports (whether they comprise deep-dive diagnostics or just-in-time analysis or policy advice), that are more likely to engage the appropriate level of attention.

64. The lessons learnt from the knowledge work highlight the need for a careful approach to the development of any future RAS business in Turkey. Any possible RAS would have to be explicitly linked to selective, strategic engagement in sectors in which the WBG has a comparative advantage or global knowledge above what Turkey can access directly. Securing any future RAS in Turkey naturally means having a clearer level of ownership that is agreed up-front and that should, in principle, allow for a better partnership on data sharing, diagnostic and dissemination. This requires a deepened understanding of and adaption to Turkey’s public sector processes.

57

CPS

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ero

adju

sted

for i

nfla

tion.

T

arge

t: H

ighe

r tha

n se

ctor

ave

rage

Met

. On

aver

age

sale

s rev

enue

of t

he

SMEs

ben

efitt

ed fr

om IB

RD

SM

E II

cred

it lin

e in

crea

sed

by 4

1.5

perc

ent

Out

com

e 5:

Gro

ss n

on-p

erfo

rmin

g lo

ans (

NPL

) rat

ios f

or fi

nanc

ial

inst

itutio

ns b

enef

iting

from

IBR

D

finan

cing

do

not e

xcee

d th

e av

erag

e fo

r th

e ba

nkin

g se

ctor

(2.7

per

cent

as o

f en

d -20

11, B

RSA

).

Tar

get:

Low

er th

an se

ctor

ave

rage

Part

ially

Met

. 3 o

ut o

f 6 fi

nanc

ial

inst

itutio

ns re

cord

ed lo

wer

than

sect

or

NPL

ave

rage

. Zi

raat

, TSK

B a

nd E

xim

ha

ve b

een

cons

isten

tly u

nder

sect

oral

NPL

ra

tes w

hile

Hal

k, V

akif

and

TKB

hav

e be

en a

bove

sect

oral

ave

rage

.

Out

com

e 6:

IFC

est

imat

es le

vera

ging

th

roug

h lo

cal f

inan

cial

inte

rmed

iarie

s fin

anci

ng to

abo

ut 1

00,0

00 S

ME

clie

nts

and

120,

000

farm

ers.

Met

. Rea

ched

abo

ut 7

59,0

00 S

MEs

tota

l an

d 11

2,18

2 ad

ditio

nal f

arm

ers.

Thes

e in

dica

tors

are

cal

cula

ted

thro

ugh

IFC

`s

inve

stm

ent p

ortfo

lio in

term

edia

ries.

Out

com

e 7:

Incr

ease

in c

orpo

rate

bon

d iss

uanc

e.

Bas

elin

e: T

L 50

.3 b

n (2

013)

. T

arge

t: 5

0 bn

(201

5).

Unm

et. D

ue to

dom

estic

and

glo

bal

unce

rtain

ties

in th

e m

arke

ts is

suan

ces f

ell

dow

n si

gnifi

cant

ly in

the

past

2 y

ears

. TL

44 b

illio

n (2

014)

, TL,

TL

44.5

(201

5)

Out

com

e 8:

Per

cent

age

of w

oman

save

d at

a fi

nanc

ial i

nstit

utio

n in

the

past

yea

r, fe

mal

e (%

age

15+

) B

asel

ine

2 %

(Fin

dex

2011

) T

arge

t: 3

.3%

(Fin

dex

2015

)

Met

. 5.5

% (F

inde

x 20

14 re

leas

ed in

Se

ptem

ber 2

015.

Fin

dex

is a

glob

al s

urve

y an

d is

not c

ondu

cted

ann

ually

but

in 3

-4

year

inte

rval

s).

59

Out

com

e 9:

IFC

’s re

al se

ctor

por

tfolio

co

mpa

nies

will

pro

vide

abo

ut a

dditi

onal

70

,000

jobs

.

Mos

tly M

et. 6

6,36

7 ad

ditio

nal j

obs

crea

ted.

Im

pact

Eva

luat

ion

of IS

KU

R’s

(Tur

kish

Em

ploy

men

t Age

ncy)

Voc

atio

nal T

rain

ing

Prog

ram

s (FY

14) P

1205

14

TA

Pro

gram

mat

ic H

uman

Dev

elop

men

t (FY

13)

P133

668

TA

Pro

gram

mat

ic H

uman

Dev

elop

men

t (FY

12)

P 12

8493

I

FC S

uppo

rt fo

r voc

atio

nal e

duca

tion

The

mat

ic A

rea

3: I

mpr

oved

gov

erna

nce

thro

ugh

enha

nced

tran

spar

ency

to e

nsur

e a

leve

l pla

ying

fiel

d. –

Ful

ly A

chie

ved

WB

G O

utco

me

Indi

cato

rs:

Prog

ress

to D

ate:

Fi

nanc

ing:

D

PL –

Sus

tain

ing

Shar

ed G

row

th I

(FY

15) P

1463

22

TF

GPF

(Gov

erna

nce

Partn

ersh

ip F

acili

ty):

Cap

acity

Bui

ldin

g fo

r the

Par

liam

ent

(FY

09

– FY

14) P

1311

81

TF

IDF

(Ins

titut

iona

l Dev

elop

men

t Fun

d): S

treng

then

ing

Publ

ic In

tern

al A

udit

Func

tion

(P12

8662

) T

F SA

FE (S

treng

then

ing

Acc

ount

abili

ty a

nd F

iduc

iary

Env

ironm

ent):

Enh

anci

ng

the

Supr

eme

Aud

it Fu

nctio

n of

the

Turk

ish C

ourts

of A

ccou

nts (

FY 1

4) P

1285

98

Kno

wle

dge:

S

OE

Cor

pora

te G

over

nanc

e TA

(P15

2468

) E

SW T

urke

y’s

Tran

sitio

ns: I

nteg

ratio

n, In

clus

ion,

Inst

itutio

ns/C

ount

ry E

cono

mic

M

emor

andu

m (F

Y15

) (P1

3357

0)

ESW

Tra

nspo

rt Pu

blic

Exp

endi

ture

Rev

iew

(FY

12) P

1230

74

TA

: Pub

lic F

inan

cial

Man

agem

ent a

nd G

over

nanc

e (F

Y14

) P14

7805

T

A P

rogr

amm

atic

Pub

lic F

inan

cial

Man

agem

ent (

PPFM

) Stu

dy. (

FY13

) P13

0537

. T

A: P

rogr

amm

atic

Gov

erna

nce

(FY

15/1

6)

IFC

Cor

pora

te G

over

nanc

e ad

viso

ry p

roje

ct

IFC

, thr

ough

its

inve

stm

ents

, will

con

tinue

to o

ffer

cor

pora

te g

over

nanc

e ad

vice

to

its c

lient

s T

A J

ustic

e Se

ctor

Per

form

ance

(FY

14) P

1454

80

Out

com

e 1:

Incr

ease

in n

umbe

r of f

irms

with

inde

pend

ent a

udit:

Bas

elin

e: 2

500

in 2

013.

Tar

get:

350

0 in

201

5.

Met

. The

Cou

ncil

of M

inis

ters

dec

isio

n pu

blish

ed in

the

Off

icia

l Gaz

ette

dat

ed 1

9 M

arch

201

6 fu

rther

redu

ced

the

thre

shol

d es

tabl

ishin

g th

e au

ditin

g re

quire

men

ts fo

r co

mpa

nies

. The

num

ber o

f firm

s with

in

depe

nden

t aud

it by

end

201

6 is

expe

cted

to

exc

eed

5,00

0.

Pilla

r 2: I

mpr

oved

Equ

ity a

nd S

ocia

l Ser

vice

s – P

artia

lly A

chie

ved

T

hem

atic

Are

a 4:

Im

prov

ed q

ualit

y an

d eq

uity

of s

ocia

l ser

vice

s - F

ully

Ach

ieve

d

WB

G O

utco

me

Indi

cato

rs:

Prog

ress

to D

ate:

Fi

nanc

ing

in H

ealth

:

60

Out

com

e 1:

Min

istry

of H

ealth

is

reor

gani

zed

and

focu

ses e

xclu

sive

ly o

n th

e he

alth

sect

or’s

stew

ards

hip

func

tions

by

2015

.

Met

. The

re

orga

niza

tion

of

Min

istry

of H

ealth

has

be

en a

chie

ved

thro

ugh

the

Dec

ree

Law

663

da

ted

Nov

embe

r 201

1.

The

seco

ndar

y le

gisl

atio

n ha

s be

en

appr

oved

by

Nov

embe

r 201

2.

Hea

lth S

yste

m S

treng

then

ing

& S

uppo

rt (F

Y16

) P

roje

ct in

Sup

port

of R

estru

ctur

ing

of H

ealth

pre

viou

s na

me:

Hea

lth T

rans

form

atio

n an

d So

cial

Se

curit

y R

efor

m P

roje

ct A

PL 2

(FY

09) P

1021

72

TF

Gov

erna

nce

Partn

ersh

ip F

acili

ty (G

PF):

Hea

lth T

rans

form

atio

n an

d So

cial

Sec

urity

Ref

orm

(FY

09)

Ada

na H

ealth

Pro

ject

(FY

15),

IFC

's fir

st P

PP p

roje

ct in

the

heal

thca

re s

ecto

r and

a fi

rst f

or T

urke

y.

Etli

k H

ealth

PPP

and

Kay

seri

Hea

lth P

PP (F

Y15

, IFC

) – P

PPs t

o bu

ild in

tegr

ated

hea

lth c

ampu

ses.

M

IGA

gua

rant

ee o

f equ

ity in

vest

men

t int

o A

dana

Hea

lth P

PP P

roje

ct (F

Y15

). M

IGA

gua

rant

ee o

f equ

ity in

vest

men

t and

deb

t fin

anci

ng in

to Y

ozga

t Hea

lth P

PP P

roje

ct (F

Y15

). K

now

ledg

e in

Hea

lth:

Im

pact

Eva

luat

ion

HR

BF

Gra

nt H

ealth

(pro

gram

med

FY

15/F

Y16

) P13

0373

T

A P

harm

aceu

tical

s (FY

14) P

1333

09

TA

Sup

port

to S

harin

g Le

sson

s in

Hea

lth S

ecto

r Ref

orm

incl

udin

g po

licy

note

s on

the

polit

ical

ec

onom

y of

hea

lth re

form

, hos

pita

l res

truct

urin

g, a

nd h

ealth

fina

ncin

g. (F

Y14

) P14

4940

E

SW P

erfo

rman

ce-b

ased

con

tract

ing

in F

amily

Med

icin

e (F

Y13

) P12

9248

I

FC’s

inve

stm

ents

to im

prov

e ac

cess

to h

igh-

qual

ity p

rivat

e he

alth

car

e se

rvic

es

Kno

wle

dge

in E

duca

tion:

P

rogr

amm

atic

wor

k lik

ely

cove

ring

scho

ol a

uton

omy

and

finan

cing

is p

lann

ed fo

r FY

15/1

6.

Im

prov

ing

Educ

atio

nal O

utco

mes

(FY

14) P

1320

94

Pro

mot

ing

Exce

llenc

e in

Tur

kish

Sch

ools

(FY

13)

P12

9423

I

mpr

ovin

g th

e Q

ualit

y an

d Eq

uity

of B

asic

Edu

catio

n (F

Y12

) P12

2445

S

choo

l Bas

ed M

anag

emen

t in

Turk

ey (F

Y15

) P14

8207

Out

com

e 2:

All

publ

ic h

ospi

tals

orga

nize

d in

pub

lic h

ospi

tal u

nion

s and

pa

id o

n th

e ba

sis o

f per

form

ance

co

ntra

cts w

ithin

a g

loba

l bud

get.

Met

. The

re

orga

niza

tion

of

Min

istry

of H

ealth

has

be

en a

chie

ved

thro

ugh

the

Dec

ree

Law

663

da

ted

Nov

embe

r 201

1.

The

seco

ndar

y le

gisl

atio

n ha

s be

en

appr

oved

by

Nov

embe

r 201

2.

Out

com

e 3:

Cer

vica

l can

cer s

cree

ning

am

ong

wom

en a

ged

20-6

9 in

crea

sed.

Bas

elin

e: 1

9% in

201

2.

Tar

get:

incr

ease

by

30%

by

2016

Met

. By

June

201

6,

Cer

vica

l can

cer

scre

enin

g ha

s am

ong

wom

en a

ged

20-6

9 in

crea

sed

83.6

%

com

pare

d to

201

2 ba

selin

e.

Act

ual:

82%

The

mat

ic A

rea

5: P

rogr

ess m

ade

tow

ard

gend

er e

qual

ity a

nd in

clus

ive

labo

r m

arke

ts -

Part

ially

Ach

ieve

d W

BG

Out

com

e In

dica

tors

: Pr

ogre

ss to

Dat

e:

Fina

ncin

g:

DPL

– S

usta

inin

g Sh

ared

Gro

wth

I (F

Y15

) I

ncre

asin

g W

omen

’s A

cces

s to

Econ

omic

Opp

ortu

nity

P14

6215

; TF

SID

A

IFC

sup

port

for w

omen

-ow

ned

SMEs

thro

ugh

its p

ortfo

lio b

anks

K

now

ledg

e:

ESW

Pro

gram

mat

ic J

obs:

Act

ivat

ion

of L

ow S

kille

d Y

outh

and

Wom

en (F

Y14

) P1

3109

9 T

A G

ende

r Equ

ity C

ertif

icat

ion

in th

e Pr

ivat

e Se

ctor

(FY

12 P

1294

35 a

nd F

Y13

P

1337

41)

Out

com

e 1:

At l

east

20

com

pani

es

gran

ted

new

Gen

der E

quity

C

ertif

icat

ion

by e

nd o

f 201

5.

Bas

elin

e: Z

ero

in 2

011.

Part

ially

Met

. G

ende

r Equ

ity C

ertif

icat

ion

has

been

re

ceiv

ed b

y 17

firm

s.

Out

com

e 2:

Con

tribu

tion

to in

crea

sed

fem

ale

labo

r for

ce p

artic

ipat

ion

thro

ugh

supp

ort t

o 90

0 w

omen

ow

ned

SMEs

th

roug

h IF

C fi

nanc

ed S

MEs

.

Met

. IFC

reac

hed

2,63

3 w

omen

ow

ned

ente

rpris

es th

roug

h its

SM

E se

ctor

po

rtfol

io.

61

Out

com

e 3:

Impr

oved

acc

ess f

or S

ocia

l A

ssist

ance

ben

efic

iarie

s to

Act

ive

Labo

r M

arke

t Pro

gram

s as

mea

sure

d by

the

num

ber o

f peo

ple

enro

lled

in IS

KU

R

prog

ram

s thr

ough

soci

al so

lidar

ity

foun

datio

ns (s

emi -a

uton

omou

s pub

lic

agen

cies

) B

asel

ine

2012

: 950

0 T

arge

t: 4

0000

by

end

FY15

.

Not

Ver

ified

. ISK

UR

star

ted

regi

ster

ing

SA b

enef

icia

ries

into

the

data

base

but

then

st

oppe

d du

e to

the

qual

ity o

f dat

a.

Ther

efor

e, th

ere

is no

ava

ilabl

e da

ta to

m

easu

re th

e pr

ogre

ss so

far.

Im

pact

Eva

luat

ion

of IS

KU

R’s

(Tur

kish

Em

ploy

men

t Age

ncy)

Voc

atio

nal T

rain

ing

Prog

ram

s (FY

14) P

1205

14

Pilla

r 3:

Dee

pene

d Su

stai

nabl

e D

evel

opm

ent –

Par

tially

Ach

ieve

d

The

mat

ic A

rea

6: I

mpr

oved

sup

ply

of r

elia

ble

and

effic

ient

ene

rgy,

incr

ease

d us

e of

ren

ewab

le e

nerg

y so

urce

s and

clim

ate

actio

ns u

nder

impl

emen

tatio

n - F

ully

A

chie

ved

WB

G O

utco

me

Indi

cato

rs:

Prog

ress

to D

ate:

Fina

ncin

g:

DPL

– S

usta

inin

g Sh

ared

Gro

wth

I (F

Y15

) P14

6322

G

as S

ecto

r Dev

elop

men

t Pro

ject

– A

dditi

onal

Fin

anci

ng (F

Y15

) P13

3565

plu

s CTF

R

enew

able

Ene

rgy

Infr

astru

ctur

e (T

EIA

S) (F

Y14

) P14

4534

S

ME

Ener

gy E

ffic

ienc

y (F

Y13

) P12

2178

and

GEF

con

tribu

tion

P132

189

Priv

ate

Sect

or R

enew

able

Ene

rgy

and

Ener

gy E

ffic

ienc

y Pr

ojec

t – A

dditi

onal

Fi

nanc

ing

(FY

12) P

1125

78

Thi

rd P

rogr

amm

atic

Env

ironm

enta

l Sus

tain

abili

ty a

nd E

nerg

y Se

ctor

(ESE

S) D

PL

(FY

12) P

1216

51

Ene

rgy

Com

mun

ity o

f Sou

th E

ast E

urop

e (E

CSE

E) A

PL6

Proj

ect (

FY11

) P11

0841

P

rivat

e Se

ctor

Ren

ewab

le E

nerg

y an

d En

ergy

Eff

icie

ncy

Proj

ect (

FY09

) P11

2578

E

lect

ricity

Dist

ribut

ion

Reh

abili

tatio

n Pr

ojec

t (FY

07)

Gas

Sec

tor D

evel

opm

ent P

roje

ct (F

Y06

) P09

3765

T

F EU

/IPA

Ene

rgy

Sect

or T

echn

ical

Ass

istan

ce I

(FY

14)

TF

EU/IP

A E

nerg

y Se

ctor

Tec

hnic

al A

ssist

ance

I (F

Y15

) T

F PM

R (P

artn

ersh

ip fo

r Mar

ket R

eadi

ness

): C

arbo

n M

arke

ts In

itiat

ives

(app

rova

l FY

14) P

1261

01

Out

com

e 1:

Impr

oved

sup

ply

of re

liabl

e an

d ef

ficie

nt e

nerg

y by

add

ing

at le

ast

10,0

00 M

W n

ew g

ener

atio

n ca

paci

ty b

y 20

15.

Met

. Gen

erat

ion

capa

city

reac

hed

near

ly

73,0

00 M

W b

e en

d-20

15, w

ith a

n in

crea

se o

f nea

rly 2

4,00

0 M

W s

ince

end

-20

10.

Out

com

e 2:

Ren

ewab

le e

lect

ricity

ge

nera

tion

as a

per

cent

age

of to

tal

gene

ratio

n in

crea

sed

from

19.

7%

(cor

rect

ion

from

18%

) in

2009

to 3

0% o

r m

ore

in 2

015.

Met

. Ele

ctric

ity g

ener

ated

from

re

new

able

ene

rgy

reso

urce

s con

stitu

ted

31.5

per

cent

of t

he to

tal e

nerg

y ge

nera

tion

in 2

015.

Out

com

e 3:

IFC

reac

hing

thro

ugh

its

pow

er g

ener

atio

n/di

strib

utio

n po

rtfol

io

com

pani

es a

bout

7.2

mill

ion

elec

trici

ty

cust

omer

s by

FY

15.

Bas

elin

e: 4

.1 m

illio

n cu

stom

ers

in

FY11

.

Met

. 7.5

mill

ion

Cus

tom

ers r

each

ed

thro

ugh

IFC

`s p

ower

ge

nera

tion/

dist

ribut

ion

portf

olio

.

62

Tar

get:

7.2

mill

ion

in F

Y15

.

TF

CTF

(Cle

an T

echn

olog

y Fu

nd):

Priv

ate

Sect

or R

enew

able

Ene

rgy

and

Ener

gy

Effic

ienc

y Pr

ojec

t (FY

09)

TF

IFC

Geo

Fund

(Geo

ther

mal

Ene

rgy

Dev

elop

men

t Pro

gram

): Te

chni

cal

Ass

istan

ce (F

Y11

) I

FC S

usta

inab

le E

nerg

y fin

anci

ng

IFC

fina

ncin

g fo

r ren

ewab

le e

nerg

y pr

ojec

ts (g

eoth

erm

al, h

ydro

and

win

d po

wer

) I

FC fi

nanc

ing

for p

ower

dist

ribut

ion

com

pani

es

IFC

fina

ncin

g en

ergy

eff

icie

ncy

proj

ects

K

now

ledg

e:

Tur

key`

s Ene

rgy

Tran

sitio

n –

Mile

ston

es a

nd C

halle

nges

(FY

16) P

1496

38

Ene

rgy

Ref

orm

Mile

ston

es a

nd C

halle

nges

(FY

15) P

1496

38

TA

Ene

rgy

Effic

ienc

y In

stitu

tions

(FY

15) P

1465

01

TA

Soc

ial M

onito

ring

in E

nerg

y Se

ctor

(FY

15) P

1474

96

TA

on

Elec

trici

ty M

arke

t (FY

12) P

1145

34

TF

Faci

litat

ing

Ener

gy E

ffic

ienc

y (E

SMA

P) (F

Y12

) P13

0578

Out

com

e 4:

Cum

ulat

ive

ener

gy sa

ving

s of

4,3

72 G

Wh

or 1

.5%

of 2

013t

otal

an

nual

dem

and

by 2

016

to b

e ac

hiev

ed

thro

ugh

SME

EE a

nd R

E cr

edit

lines

.

Part

ially

Met

. Cum

ulat

ive

ener

gy

savi

ngs f

rom

PSR

EEE

and

SME

EE

Proj

ects

reac

hed

3772

GW

h by

Jun

e 20

16.

Out

com

e 5:

Incr

easi

ng g

as st

orag

e is

criti

cal f

or T

urke

y's e

nerg

y se

curit

y.

Bas

elin

e: 2

.6 b

cm in

201

3 T

arge

t: 1

9% in

crea

se b

y 20

16 a

nd 3

8%

incr

ease

by

2020

with

the

com

plet

ion

of

phas

e 1

and

phas

e 2

of th

e Tu

z G

olu

gas

stor

age

proj

ect,

resp

ectiv

ely.

Part

ially

Met

. Gas

Sec

tor D

evel

opm

ent

Proj

ect i

s on

track

, and

thes

e in

dica

tors

ar

e ex

pect

ed to

be

achi

eved

tim

ely.

The

mat

ic A

rea

7: S

tren

gthe

ned

envi

ronm

enta

l man

agem

ent a

nd a

dapt

atio

n to

clim

ate

chan

ge –

Par

tially

Ach

ieve

d.

WB

G O

utco

me

Indi

cato

rs:

Prog

ress

to D

ate:

Fi

nanc

ing:

D

PL -

Third

Pro

gram

mat

ic E

nviro

nmen

tal S

usta

inab

ility

and

Ene

rgy

Sect

or (E

SES)

(F

Y12

) P12

1651

A

nato

lia W

ater

shed

Reh

abili

tatio

n Pr

ojec

t plu

s G

EF P

roje

ct (F

Y04

) T

F G

EF3

Full-

Size

d Pr

ojec

t: Tu

rkey

Ana

tolia

Wat

ersh

ed R

ehab

ilita

tion

Proj

ect

(FY

05)

Kno

wle

dge:

S

usta

inab

le U

rban

WSS

(FY

16) P

1501

12

ESW

Rio

+20/

Cle

aner

Pro

duct

ion

(FY

12) P

1276

75

TA

Foo

d Sa

fety

Pro

gram

mat

ic T

A (F

Y14

) P14

5557

T

A W

ater

Dia

logu

e (F

Y15

) P14

6361

T

A N

atio

nal W

ater

shed

Man

agem

ent (

FY12

) P12

9244

D

iagn

ostic

of N

atur

al C

apita

l Sav

ing

and

Sust

aina

ble

Gro

wth

(FY

15) P

1496

86

Env

ironm

enta

l and

Nat

ural

Res

ourc

e M

anag

emen

t Pro

gram

mat

ic T

A (F

Y15

/FY

16)

Out

com

e 1:

Impr

oved

Wat

er B

asin

M

anag

emen

t: Pr

otec

tion

actio

n pl

ans

prep

ared

for T

urke

y’s 2

5 riv

er b

asin

s, ta

king

into

acc

ount

prin

cipl

es o

f the

W

ater

Fra

mew

ork

Dire

ctiv

e.

Bas

elin

e: 4

in 2

009;

T

arge

t: a

t lea

st 2

0 by

end

-201

2.

Met

. Ach

ieve

d th

roug

h po

licy

supp

ort

unde

r the

ESE

S D

PL.

Out

com

e 2:

Com

plet

ion

of d

raft

Inte

grat

ed W

ater

Bas

in M

anag

emen

t pl

an a

nd e

stab

lishm

ent o

f Bas

in

Com

miss

ion

in se

lect

ed p

ilot b

asin

.

Met

. Dra

ft In

tegr

ated

Bas

in M

anag

emen

t Pl

an fo

r Buy

uk M

ende

res

basi

n an

d es

tabl

ishm

ent o

f bas

in c

omm

issio

ns in

all

25 b

asin

s with

a M

oFW

A c

ircul

ar d

ated

M

ay 2

5, 2

015.

63

Out

com

e 3:

Est

ablis

hmen

t of N

atur

al

Cap

ital A

ccou

nts

in tw

o se

lect

ed w

ater

ba

sins

.

Unm

et. V

alua

tion

of n

atur

al re

sour

ces

befo

re e

stab

lishi

ng n

atur

al c

apita

l ac

coun

ts p

riorit

ized

. The

refo

re, t

he W

BG

fo

cus w

as g

iven

to v

alua

tion

met

hodo

logy

. Tw

o re

ports

on

valu

atio

n m

etho

dolo

gy a

nd c

ase

stud

ies

in th

e fo

rest

and

wat

er se

ctor

s wer

e pr

epar

ed

and

shar

ed w

ith th

e go

vern

men

t.

The

mat

ic A

rea

8: I

mpr

oved

sus

tain

abili

ty o

f Tur

kish

citi

es. –

Par

tially

Ach

ieve

d W

BG

Out

com

e In

dica

tors

: Pr

ogre

ss to

Dat

e:

Fina

ncin

g:

Lan

d R

egist

ratio

n an

d C

adas

ter M

oder

niza

tion

Proj

ect A

F (F

Y15

) P10

6284

M

unic

ipal

Ser

vice

s Pro

ject

(FY

05) p

lus

Add

ition

al F

inan

cing

(F

Y10

) P08

1880

I

stan

bul S

eism

ic R

isk M

itiga

tion

and

Emer

genc

y Pr

epar

edne

ss P

roje

ct (F

Y05

) plu

s A

dditi

onal

Fin

anci

ng

(FY

10) P

0783

59

IFC

Mun

icip

al F

inan

ce to

impr

ove

mun

icip

al in

fras

truct

ure

I

FC In

vest

men

ts in

tran

spor

t log

istic

s M

IGA

cre

dit e

nhan

cem

ent o

f thr

ee n

on-s

hare

hold

er lo

ans

- pa

ralle

l to

IFC

- to

Met

ropo

litan

Mun

icip

ality

of I

zmir

for

acqu

isiti

on o

f new

ferr

y bo

ats,

cons

truct

ion

of e

lect

rifie

d tra

mw

ay, a

nd a

cqui

sitio

n of

met

ro tr

ains

(FY

13, F

Y14

, FY

15).

MIG

A c

redi

t enh

ance

men

t of n

on-s

hare

hold

er lo

an to

Is

tanb

ul U

lasi

m A

.S. f

or U

skud

ar-U

mra

niye

-Cek

mek

oy

met

ro c

omm

uter

line

(FY

15)

Kno

wle

dge:

Reg

iona

l Dev

elop

men

t and

Vul

nera

bilit

y Pr

ogra

mm

atic

TA

(F

Y16

) P15

1079

T

urke

y C

redi

twor

thin

ess

Aca

dem

y (F

Y16

) P15

9176

I

BR

D-I

FC S

usta

inab

le C

ities

JIP

(FY

16) P

1561

61

Out

com

e 1:

An

addi

tiona

l 420

,000

peo

ple

in fo

ur c

ities

un

der t

he M

unic

ipal

Ser

vice

s Pro

ject

hav

e ga

ined

acc

ess

to e

nhan

ced

urba

n se

rvic

es, e

.g.,

wat

er s

uppl

y,

sew

erag

e, a

nd so

lid w

aste

man

agem

ent.

Met

. Mun

icip

al S

ervi

ces p

roje

ct c

ontin

ued

its

satis

fact

ory

impl

emen

tatio

n th

roug

hout

the

CPS

. Pr

ojec

t inv

estm

ents

hel

ped

to s

urpa

ss th

e ta

rget

w

ith o

ver 2

.5 m

illio

n pe

ople

.

Out

com

e 2:

Mun

icip

al g

over

nanc

e: P

erfo

rman

ce

impr

ovem

ent e

ffor

ts a

nd c

ompe

titio

n un

derw

ay a

mon

g lo

cal p

ublic

adm

inis

tratio

ns to

rece

ive

high

er ra

ting

base

d on

Citi

zen

Rep

ort C

ard.

B

asel

ine:

1 p

ilot m

unic

ipal

ity (M

anis

a). T

arge

t: 6

mun

icip

aliti

es

Met

Per

form

ance

impr

ovem

ent e

ffor

ts a

nd

com

petit

ion

amon

g lo

cal p

ublic

adm

inis

tratio

ns

thro

ugh

mea

surin

g th

e C

itize

n R

epor

t Car

d ha

ve

been

diss

emin

ated

into

6 m

unic

ipal

ities

by

Turk

ish lo

cal g

over

nmen

ts in

Man

isa,

Tra

bzon

, A

ntal

ya, I

stan

bul,

Ada

na, a

nd M

alat

ya.

Out

com

e 3:

New

Ista

nbul

Kar

diko

y-K

arta

l Met

ro

com

mut

er li

ne. A

dditi

onal

419

,000

peo

ple

bene

fit fr

om

impr

oved

serv

ices

by

2016

. B

asel

ine:

150

,000

peo

ple

in 2

013.

Part

ially

Met

. The

pro

ject

is p

rogr

essi

ng.

Ave

rage

wee

kday

ride

rshi

p re

ache

d to

277

,000

pe

ople

(firs

t hal

f of 2

016)

.

64

Out

com

e 4:

Tw

o ne

w Iz

mir

elec

trifie

d tra

mw

ay li

nes

and

impr

oved

traf

fic m

anag

emen

t.

Part

ially

Met

. Con

stru

ctio

n on

trac

k to

be

com

plet

ed b

y 20

17; a

dditi

onal

240

,000

peo

ple

will

hav

e ac

cess

. [N

ote:

mea

sura

ble

impa

ct fa

lls

outs

ide

of C

PS p

erio

d] E

xpec

ted

to b

e op

erat

iona

l in

2018

.

TF

GFD

RR

(Glo

bal F

acili

ty fo

r Disa

ster

Red

uctio

n an

d R

ecov

ery)

: Disa

ster

Miti

gatio

n an

d Pr

epar

edne

ss (F

Y09

) T

F PP

IAF

(Pub

lic-P

rivat

e In

fras

truct

ure

Adv

isory

Fac

ility

): Su

stai

nabl

e C

ities

(Mun

icip

al C

redi

t Rat

ings

Tra

nsac

tion

Stru

ctur

ing)

(FY

15) P

1333

45

ESW

Tur

key’

s Tr

ansi

tions

: Int

egra

tion,

Incl

usio

n,

Inst

itutio

ns/C

ount

ry E

cono

mic

Mem

oran

dum

(FY

15)

(P13

3570

) E

SW U

rban

izat

ion

Rev

iew

(FY

15) P

1286

06

Env

ironm

enta

l and

Nat

ural

Res

ourc

e M

anag

emen

t Pr

ogra

mm

atic

TA

.

Out

com

e 5:

Disc

harg

e of

unt

reat

ed w

aste

wat

er

redu

ctio

n in

to th

e A

egea

n Se

a th

roug

h ex

pans

ion

of th

e IF

C fi

nanc

ed Iz

mir

Was

te W

ater

Tre

atm

ent P

lant

.

Bas

elin

e: 6

05,0

00m

3 /d

ay tr

eate

d in

201

2 T

arge

t: 8

21,0

00m

3/da

y tre

ated

by

2016

Part

ially

Met

. No

repo

rtabl

e re

sults

yet

: the

re

was

a d

elay

in c

onst

ruct

ion

due

to Iz

mir

Mun

i ch

angi

ng c

ontra

ctor

s, ho

wev

er th

e pr

ojec

t is o

n tra

ck to

be

oper

atio

nal b

y en

d -20

16.

Out

com

e 6:

A to

tal o

f 806

pub

lic b

uild

ings

in th

e Is

tanb

ul P

rovi

nce

retro

fitte

d/re

cons

truct

ed to

resi

st a

m

ajor

ear

thqu

ake

com

pare

d to

201

4 ta

rget

of 7

63

build

ings

.

Met

. ISM

EP p

roje

cts h

as b

een

com

pete

d hi

ghly

sa

tisfa

ctor

ily b

y re

achi

ng 8

06 p

ublic

bui

ldin

gs

retro

f itte

d/re

cons

truct

ed.

Out

com

e 7:

Cus

tom

er sa

tisfa

ctio

n ra

te fo

r Lan

d R

egist

ry se

rvic

es im

prov

ed.

Bas

elin

e: 4

0% in

200

8. T

arge

t: 8

5% b

y en

d-20

15.

Met

. Lan

d R

egist

ry a

nd C

adas

ter p

rogr

esse

s sa

tisfa

ctor

ily a

nd c

usto

mer

satis

fact

ion

rate

hav

e re

ache

d 90

% a

s of D

ecem

ber 2

015.

65

Table 1: CPS Period IBRD Lending Approvals

CPS FY12-16 Planned IBRD US$ (M) CPS FY12-16 Actual IBRD US$ (M)

Development Policy Lending: Development Policy Lending:

Third Programmatic Environmental Sustainability and Energy Sector DPL

600 Third Programmatic Environmental Sustainability and Energy Sector DPL

600

Investment Project Financing: Investment Project Financing:

Private Sector Renewable Energy and Energy Efficiency Additional Financing

500 Private Sector Renewable Energy and Energy Efficiency Additional Financing

500

Sub-total 1,100 Sub-total 1,100

Development Policy Lending: Development Policy Lending:

Programmatic DPL Growth, Competitiveness and Employment

600 Competitiveness and Savings DPL 800

Investment Project Financing: Investment Project Financing:

Private Sector Energy Efficiency 200 SME Energy Efficiency 201SME Access to Finance (Food Safety) 200 SME Access to Finance III 300Project on Health 200Allocation to be decided 100

Sub-total 1,300 Sub-total 1,301

Development Policy Lending: Development Policy Lending:

Development Policy Loan - tbd 350 (moved to FY15)Investment Project Financing: Investment Project Financing:

Areas of Access to Finance: SME or exporters Renewable Energy Integration 300Areas of Education / EmploymentAreas of Sustainable Cities / Disaster / Watershed / Energy

Sub-total 1,050 Sub-total 300

Sub-total FY12-14 2,701

Development Policy Lending: Development Policy Lending:

Sustaining Shared Growth DPL- 1 500 Sustaining Shared Growth DPL- 1 500Investment Project Financing: Investment Project Financing:

Gas Sector Development (BOTAS) Additional Financing

400 Gas Sector Development (BOTAS) Additional Financing

400

Innovative Access to Finance 250 Innovative Access to Finance 250Water Basin Management and Rehabilitation 50Geothermal Energy Development (plus CTF) 300Sustainable Cities 300Long Term Finance Gurantee - $300 m (tbd)

Sub-total 1,800 Sub-total 1,150

Development Policy Lending:

Sustaining Shared Growth DPL-2 500 (moved to FY17)Investment Project Financing:

National Disaster Risk Mitigation 300Health 100 Health System Strengthening & Support 134

Financial Sector Operation 300 MicroSmall&Medium Enterprise and Large Enterprise Supply Chain Finance

200

Land Registration and Cadastre Modernization Project Additional Financing

91

Sub-total 1,200 Sub-total 425

Total Planned 6,450 Total Actual (as of June 2016) 4,276

FY16

FY12

FY14

700

FY14

FY13 FY13

FY12

FY15

FY16

FY15

66

Table 2: CPS Period IFC Long Term Commitments (FY12-16)

FY Industry Project ID and Name Project count

Original Commitment Activity - IFC Own Account

Original Commitment Activity - B

Loan

Original Commitmen

t Activity Other

Mobilization

Total

2012

FM Industry Group

29413-Abank Sub Loan 0 27 27 31531-Finansbank RI II 1 3 0 3 31114-Fibabanka Women 1 30 0 19 49 31113-ABank-Women 1 25 0 15 40 31112-TSKB Sustainable 1 75 0 75 31085-YKB DPR 1 75 0 70 145 30579-Seker Bond 1 25 0 25

MAS Industry Group

32197-UHG RightsIss II 1 6 0 6 31929-UHG RightsIssue 1 1 0 1 31474-MNT 1 30 0 30 28467-Tiryaki 1 30 0 30

2013

CTT Industry Group

32659-Earlybird 1 25 0 25 31623-Mediterra CP 1 20 0 20

FM Industry Group

33154-Deniz Covered B. 1 70 0 70 33143-TSKB Pol. Abatem 1 75 0 75 32241-Is Leasing EE/RE 1 35 0 35 31274-Finansbank DPR 1 75 0 75

Infra Industry Group

32902-Asyaport 1 75 0 75 32503-Farcan ACWA 1 125 0 125 32078-Izsu Wastewater 1 36 0 36 31733-Izmir Muni 1 59 0 59

MAS Industry Group

33711-Sisecam Bond 1 40 0 40 32583-Plato 1 6 0 6 32420-Sanko Tekstil 1 25 0 25 32285-CPLF-ModernKarto 1 8 0 8 32026-OzU 1 43 0 43 31983-Superfilm 1 45 0 45 31836-KKagit 1 50 0 50

2014

CTT Industry Group

33645-Logo 1 13 0 13

FM Industry Group

35153-Seker RI 1 1 4 0 4 33922-Seker Sub 1 50 0 50 32915-Odea Bank SME 1 50 0 50 32669-Fiba Sub Loan 1 40 0 40

Infra Industry Group

34457-Transatlantic 1 40 0 40 34306-Izmir Tramway 1 76 0 76 33943-Mersin Port 1 75 0 75 32036-Viking Services 1 50 0 50

MAS Industry Group

34764-Cimko II-B Loan 0 0 3 3 34448-Recordati Ilac 1 34 0 34 34061-Tiryaki II 1 30 0 30 34009-OzU II 1 25 0 25 33995-Elif Turkey 1 10 0 10 33753-Cimko Cement II 1 40 25 65 33528-Astra Dorms 1 10 0 10 32940-Chipita Turkey 1 15 0 15

2015 CTT Industry Group

36641-Mercury 1 15 0 15 36631-ATF I 1 40 0 40 35939-Zenium 1 25 0 25

67

35828-Iyzico 1 3 0 3

FM Industry Group

36788-Sekerbank RI 2 1 1 0 1 36341-Sekerbank swap 1 1 0 1 36153-FinansL EE II 1 40 0 20 60 36017-Seker Bond Swap 1 17 0 17 35827-Odeabank GrMortg 1 45 0 22 67 34488-Abank EE 1 50 0 45 95 33950-YKL Sustainable 1 64 0 32 96

Infra Industry Group

36080-Izsu Sewerage 1 12 0 12 35395-ACWA Kirikkale 0 0 45 45 35012-Izmir Railcars 1 25 0 25 34552-HKA 0.5 31 0 17 48 34552-HKA 0.5 31 0 17 48 32258-Gama Enerji 1 165 0 38 203

MAS Industry Group

36337-Adana Swap 1 4 0 4 36320-Adana B Loan 0 0 62 62 34669-Soda Sanayii 1 25 0 25 34358-Adana Health 1 44 0 108 151 33995-Elif Turkey 1 10 0 10 33677-Etlik Health 1 82 87 169 31029-Kayseri Health 1 38 0 38

2016

CTT Industry Group

37661-Revo Capital 1 8 0 8 34636-Taxim Capital 1 20 0 20

FM Industry Group

37925-Odeabank Equity 1 75 0 39 114 37112-DCM Finansb DPR2

1 100 0 100

37063-DCM TSKB Climate

1 75 0 75

36318-Seker MSME 1 50 0 25 75 36167-Fibabanka Equity 1 40 0 40 35128-Burgan Turkey 1 40 0 20 60 35827-Odeabank GrMortg 0 0 0 25 25

Infra Industry Group

38655-Karaca Swap 1 3 0 3 37872-Karaca Hydro 1 44 0 22 66 37093-MMI Metro Line 1 65 54 120 36827-HKA Hedge 1 5 0 5 36772-Akfen Energy 1 100 0 100 36711-AkCez II 1 106 58 163 36326-UNIT Equity 1 143 0 143 34552-HKA 0.5 4 0 23 27

MAS Industry Group

37310-Etlik Swap 1 3 0 3 36747-RHOL Equity 1 215 0 215 35338-Trakya Cam VIII 1 40 15 20 75 34552-HKA 0.5 4 0 23 27 31029-Kayseri Health 1 2 0 2

TOTAL FY12-16 3,579 348 624 4,552

68

Table 3: CPS Period IBRD Non-Lending Deliveries

Fiscal Year Product Line Project Name

FY12

CP Turkey CPS FY12-15 EV Turkey CASCR Review EW Third Programmatic Public Expenditure Review and PFM Study EW RIO+20 GREEN GROWTH POLICY PAPER EW Turkey: Managing labor markets through the economic cycle TA CAPACITY BUILDING FOR ELECTRICITY MARKET OPERATIONS TA Financial Literacy Task TA TR Promoting Gender Equity TA HD TA TI Turkey CT Workshop FY12

FY13

EW Education Study EW Family Medicine Study TA TR FSD TA (FSA follow-up, Capital Market Development) TA NATIONAL WATERSHED MANAGEMENT TA Programmatic Public Financial Management Study

FY14

EW Programmatic Jobs--Activation EW Turkey CEM: Trading up to High Income EW Improving Educational Outcomes in Turkey EW Turkey PPER EW Turkey Regular Economic Report EW Turkey Customs Union IE Impact Evaluation of ISKUR Vocational Training Programs KP Corporate Risk Monitoring TA Programmatic Food Safety TA-3 TA Reform for Competitiveness TA Turkish Court of Accounts Strengthening Project TA TA Pharmaceuticals Study TA Turkey Public-Private Partnership TA Turkey Green Growth Follow-up TA TA TR - Second Financial Sector Development Technical Assistance TA Capacity Building for the Parliament and Parliamentary Budge TA Justice Sector Performance Measurement TA Support to Global Conference on Universal Coverage in Turkey TA Poverty Measurement and Monitoring TA TE Workshop on Procurement and FM (P148513) TA Turkey: Promoting Gender Equity in Labor Market and Entrepreneurship

FY15

CP CPS PROGRESS REPORT EW School Based Management in Turkey EW Turkey Lessons Flagship EW TURKEY URBANIZATION REVIEW KP Social Compact in Electricity Privatization in Southeastern TA Programmatic Public Financial Management Study TA Turkey Water Dialogue TA TA Diagnostic Analysis of Natural Capital Saving and Sustainability TA Turkey #10269 Strengthening Solvency Supervision TA Private Sector Development TA TA Institutional Review of Energy Efficiency in Turkey TA Financial Inclusion and Financial Deepening TA Monitoring the Social Impacts of Electricity Privatization i TA Sustainable Cities Action Plan

69

FY16

EW Turkey's Energy Transition - Milestones and Challenges EW Defining the Bank's support to the Transport Sector in Turkey EW Policy Note Response to Refugee Crisis EW Regional Poverty Dynamics EW Fiscal Horizontal Disparities EW Regional Labor Market Dynamics EW Sustainable Urban Water Supply and Sanitation in Turkey IE IE of Refugees on Labor Markets KP Turkey Country Team Workshop 2016 PA Turkey Programmatic Jobs-Activation AAA PA Regional Development and Vulnerability PA Business Environment and Innovation Programmatic TA TA IBRD-IFC Joint Implementation Program for Sustainable Cities TA Savings & Fin. Sector Diversification TA SOE Corporate Governance Technical Assistance TA Turkey Creditworthiness Academy TA Turkey PPP FY15

70

Annex 3. Selected Indicators of Bank Portfolio Performance and Management As of July 29, 2017

Indicator FY14 FY15 FY16 FY17

Portfolio Assessment

Number of Projects Under Implementation ᵃ 12.0 11.0 10.0 12.0

Average Implementation Period (years) ᵇ 5.1 5.7 5.2 3.7

Percent of Problem Projects by Number ᵃ˒ 8.3 0.0 0.0 25.0

Percent of Problem Projects by Amount ᵃ˒ 4.0 0.0 0.0 13.2

Percent of Projects at Risk by Number ᵃ˒ 16.7 0.0 0.0 25.0

Percent of Projects at Risk by Amount ᵃ˒ 14.0 0.0 0.0 13.2

Disbursement Ratio (%) 20.3 35.8 34.5 37.3

Memorandum Item Since FY80 Last Five FYs

Proj Eval by OED by Number 149 7

Proj Eval by OED by Amt (US$ millions) 27,627.7 3,167.2

% of OED Projects Rated U or HU by Number 26.0 28.6

% of OED Projects Rated U or HU by Amt 16.4 6.7

a. As shown in the Annual Report on Portfolio Performance (except for current FY).

b. Average age of projects in the Bank's country portfolio.

c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP).

d. As defined under the Portfolio Improvement Program. e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the beginning of the year: Investment projects only. * All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio, which includes all active projects as well as projects which exited during the fiscal year.

71

Ann

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72

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80

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00

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sing

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00

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mir

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0

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015

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3 0

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20

15

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00

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/ 201

2 M

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00

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20

13

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00

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2013

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0 11

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dati

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0 17

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G

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TO

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Pa

rtic

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t

2009

/ 201

0/ 2

013/

201

4/

2017

/ 201

1/ 2

015/

201

6/

2008

/ 201

2 Se

ker B

ank

144.

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113.

71

0 28

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0.

00

1997

/ 201

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993/

200

3/

2002

Si

se v

e Ca

m

39.7

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0 39

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0 39

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00

2015

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2010

TC

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75

Annex 6. MIGA Active Guarantees (as of July 29, 2017)

Project

Name

Investor

Name

Effective

Date

Expiry

Date

Business

Sector Investor Country

Gross Exposure

($USD)

Orfin Finansman A.S. RCI Banque S.A. 12/31/2014 12/30/2021 Financial France 53,496,875

Turkish Eximbank Norddeutsche Landesbank Girozentrale 03/31/2015 03/28/2025 Financial United Kingdom 103,868,399

Turkish Eximbank Citibank Europe plc, UK Branch 03/31/2015 03/28/2025 Financial United Kingdom 193,150,363

Turkish EximBank II Citibank N.A. 06/30/2016 06/29/2026 Financial United States 609,645,368

Turkish EximBank II Citibank N.A. 07/01/2016 06/29/2026 Financial United States 233,088,047

Turkish EximBank II Citibank N.A. 11/09/2016 11/07/2026 Financial United States 35,811,552

Turkish EximBank II Citibank N.A. 11/09/2016 11/07/2026 Financial United States 116,015,663

Izmir Light Rail ING Bank, a branch of ING-DiBa AG 06/30/2015 05/31/2030 Infrastructure Germany 32,624,534

Izmir Metropolitan Municipality (IMM) ING Bank, a branch of ING-DiBa AG 06/27/2013 05/12/2023 Infrastructure Germany 34,353,167

Izmir Metropolitan Municipality (IMM) ING Bank, a branch of ING-DiBa AG 06/27/2013 05/12/2023 Infrastructure Germany 11,797,894

Izmir Tramway ING Bank, a branch of ING-DiBa AG 06/05/2014 02/26/2027 Infrastructure Germany 70,897,937

Kadikoy-Kartal-Kaynarca Metro Project Wilmington Trust (London) Limited 04/21/2011 10/14/2020 Infrastructure United Kingdom 115,862,853

Uskudar Metro BNP Paribas 02/12/2015 02/05/2028 Infrastructure France 185,508,624

Adana Integrated Health Campus Meridiam Eastern Europe S.a.r.l. 12/18/2014 12/17/2034 Services Luxembourg 143,998,105

Bursa Integrated Health Care Center Meridiam Eastern Europe S.a.r.l. 05/11/2017 05/10/2032 Services Luxembourg 107,941,451

Elazig Integrated Health Campus Meridiam Eastern Europe S.a.r.l. 11/17/2016 11/16/2036 Services Luxembourg 74,325,307

Elazig Integrated Health Campus ELZ Finance S.A. 12/13/2016 12/12/2036 Services Luxembourg 263,846,337

Turkey Gaziantep Hospital BLT Project

KDB Infrastructure Investments Asset Management Co., Ltd. 04/21/2017 04/20/2037 Services Korea, Republic

of 60,637,075

Yozgat Education and Research Hospital Meridiam Eastern Europe S.a.r.l. 06/19/2015 06/18/2035 Services Luxembourg 30,353,276

Yozgat Education and Research Hospital Siemens Bank GmbH 06/25/2015 06/02/2033 Services Germany 21,400,688

2,498,623,515

76

Annex 7. Summary note of Country Gender Assessment 2016

Turkey has substantially narrowed gender gaps in access to productive endowments and thus to economic opportunity over the last years. Between 2008 and 2013 maternal mortality rates have been cut by half, secondary and tertiary education enrolment rates among women and men have further moved towards convergence, and female labor force participation has increased by 18 percent. These improvements have been partly the consequence of improvements to the legal and institutional framework for gender equality, which have led Turkey to the 35th position (out of 108 countries) in the OECD Social Institutions and Gender Index.

However, and despite these commendable advances, women still show systematically poorer outcomes than men across significant dimensions, and Turkey lags behind countries with similar income levels and its neighbors in this regard. Disparities between men and women are particularly pressing given that, with falling fertility and mortality rates and a substantive young working-age population bulge, the country stands to benefit from a demographic dividend that can only be capitalized by raising the economic inclusion of its entire population. Moreover, the current situation of economic and social instability threatens to reverse the previous advances.

Three central challenges stand out from the analysis:

Overall, women´s lack of participation in economic activity represents and economic and development loss, and may prevent the country from fully taking advantage of the current demographic window of opportunity.

Aggregate figures mask substantial socioeconomic and regional disparities, with women from vulnerable backgrounds bearing the brunt of the existing gender gaps in access to endowments and opportunity.

The comparatively weak agency of Turkish women, as evidenced by the high rate of arranged marriages or the poor political representation of women in institutions, needs to be adequately enforced through strengthening the legal and institutional framework.

Turkey has one of the lowest female labor force participation rates among countries with similar income levels. The low female labor force participation of women is a major concern, especially considering the current stage of demographic transition in the country. Only 32 percent of Turkish women are economically active, compared to 62 percent on average in upper-middle-income countries. Moreover, Turkey is one of the few OECD countries where female labor force participation rates have decreased overall since the 1980s, albeit with fluctuations in the early 1990s and a more sustained increase after the mid-2000s.

The main reason reported by women for not joining the labor force is household and family-related duties, and especially so among women with less than high-school education. Indeed, marriage and childbearing are key determinants for women to transitioning into inactivity. The weak labor market attachment of Turkish women may also be partly explained by skills mismatches and the availability of lower quality and/or unsuitable jobs for them.

77

Women are also underrepresented in entrepreneurship and business ownership and management. While the share of employers in the total employed in Turkey, at 6 percent, is high compared to the average among Eastern Europe and Central Asia (ECA) countries (3.2 percent), the gender gap is particularly large: 7 percent of men are employers compared to only 1 percent of women. The low rates of entrepreneurship among women appear to be related to barriers to enter and remain in those activities. In particular, the gap in financial inclusion between men and women remains comparatively large. As an example, in 2014, 70 percent of men had formal accounts compared to only 44 percent for women.

In addition, and although the share of firms with some female ownership or management in Turkey is 33 percent (close to the average for the ECA region of 36 percent), only 5 percent of Turkish firms have women with 50 percent ownership compared to an ECA average of 27 percent. Similarly, only 5 percent of firms in Turkey have a woman among top management in contrast to 20 percent on average for ECA.

Aggregate gaps are largely explained by especially wide disparities between women and men from disadvantaged socioeconomic backgrounds. Differences in educational outcomes between men/boys and women/girls are largely concentrated among the most vulnerable. For instance, gaps in educational attainment between men and women are the lowest in the urban and wealthier parts of the country including Istanbul and Ankara, while enrollment in higher education increases consistently by income quartile.

In addition, a considerable part of the low female labor force participation of women in Turkey is explained by low-educated women migrants who used to be engaged in agriculture staying out of the market in urban areas. Education also decreases the gender gap in entrepreneurship in Turkey, since it has a much larger positive differential impact for females than males, and appears to be one of the critical protective factors against gender-based violence.

Women´s agency remains comparatively weak. Despite the recent progress made in the legal, institutional and policy framework for the promotion of gender equality in the country, enforcement issues persist, traditional and patriarchal values and practices are widespread and resilient to social change, and women remain politically underrepresented. Although traditional views on the role of women in society are more common among older population groups, suggesting a generational change, one-third of the highly educated and over one-half of the wealthiest Turkish population still believe that women should marry young, and the majority of men and women do not find divorce justifiable. Moreover, traditional practices such as arranged and early marriages continue to be common and widely accepted, especially in rural areas.

At 14.9 percent in 2015, the share of female Parliament representatives remains well below the ECA average of 25.7 percent. The proportion of women in ministerial positions is even lower, at 4 percent, and compares poorly with the average 21.8 percent registered in ECA for the year 2015. At the local level the picture does not change much: A mere 4 percent of the representatives in local governing bodies are women. Only two countries in Europe have a lower ratio of women as government ministers and a lower percentage of female local representatives than Turkey.

Based on the diagnosis of the current gender gaps in the country, decisive action will be required to address these issues in the near future, and particularly on three main fronts:

1. Removing the barriers to women’s economic activity.

78

a. Given the low female labor force participation in the country in connection with household and childcare duties, the provision of quality and affordable childcare, and especially among the most vulnerable women, for whom it should be strongly subsidized, will be key.

b. Other support policies include allowing flexible working times and improving maternity/paternity benefits in order to minimize potential discriminatory practices against women.

c. Business-oriented education and financial inclusion will help reinforce women’s involvement in entrepreneurial activities.

2. Expanding women’s opportunities, especially for those from vulnerable backgrounds, and enlarging the overall economic process in Turkey.

a. Facilitating a beneficial school-to-work transition by tailoring the content of higher education more closely to the needs of the private sector and thus making university education more relevant for the job market.

b. Investing in active labor market programs tailored to men and women’s needs.

c. Increasing the provision of vocational training for women with low education (e.g., low-skilled migrants living in urban areas);

d. Providing scholarship programs for girls in tertiary education, where the gender gap is substantially higher among vulnerable women.

3. Continuing to strengthen women´s agency. a. Adopting decisive actions to curtail early and arranged marriages. b. Ensuring a better representation of women in political institutions, possibly through quotas

in candidate lists. c. Continue developing the institutional and legal framework for gender equality and

making sure that it is adequately enforced.

79

Ann

ex 8

. Citi

zen

Eng

agem

ent R

oadm

ap fo

r T

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y C

PF F

Y18

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pone

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(ies)

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mm

unity

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ed ri

sk sy

stem

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team

(DEC

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poss

ibili

ty o

f fea

sibili

ty st

udy

for B

ank

supp

ort

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o ta

rget

min

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e-pa

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a.

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unch

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ely

to b

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ilize

d by

the

clien

t to

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her C

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spec

ific

area

s/se

ctor

s (e.

g. D

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- gov

erna

nce

in

Turk

ey, e

tc.)