The Grey Economy

There are various definitions and types of the informal economy. Considering that the size of the informal economy is thought to be high, especially in developing countries, it can be stated that this area is an important part of the economy.

The informal economy is defined by different terms in the literature.

These include the underground economy, hidden economy, black economy, non-observed economy, shadow economy, grey economy, and similar terms.

In this article, we will use the term “grey economy.” Although the informal economy is sometimes referred to as a “black market economy,” this often confuses the “illegal economy”—the economy of illicit activities—with the informal economy. Since the informal economy also encompasses the economy of illegal activities, we believe it is more accurate to use the term grey economy rather than simply black market economy.

Informality is much higher in developing countries compared to developed countries. At the same time, corruption is also prevalent in connection with this. In addition, one of the fundamental methods for reducing corruption and informality is to increase the level of democracy, transparency, and accountability in the country.

Democratic decision-making processes can only be achieved if transactions can be recorded. Countries that are financially transparent and increase accountability before the law will reduce corruption and informality. Practices such as tax amnesties and wealth amnesties cause an increase in informality and the criminal economy.

Unfortunately, Turkey is regressing in terms of the informal economy and the criminal economy. As explained with figures below, our country has been considered risky in this area and has been placed on the grey list.

In many international studies and reports, Turkey does not hold a good position in the informal, criminal, and corruption economy. It is either deteriorating or failing to show sufficient progress in areas that can be considered within the scope of the informal economy.

For this reason, unfortunately, no progress is seen in our standing among OECD countries.

We view the fact that the informal economy is at this level as the theft of our country's future and our children's future. The fact that residents of our country have such high amounts of money in tax havens also creates concern for our country.

It is necessary to exit the grey list as soon as possible, because the current situation both damages the perception of our country and prevents investors from coming to our country. Consequently, as long as we do not show progress in this area, our country is becoming increasingly impoverished, and the purchasing power of citizens is declining.

There is 58 billion dollars of net errors and omissions with an uncertain source in the Central Bank accounts. As long as this situation continues, we cannot exit the grey list. As long as we cannot exit the grey list, we cannot obtain loans from any of the European Union countries. In that case, the only remaining sources of financing for loans are Middle Eastern countries with controversial financial origins.

The following data will be sufficient to get an idea about the size and nature of the grey economy in our country;

- Turkey ranks 5th after the United Arab Emirates, Saudi Arabia, Mexico, and Taiwan in terms of the ratio of personal wealth in tax havens to the country's GDP. Turkey has 150 billion dollars of personal wealth in tax havens. Our country's tax loss due to tax havens is 40 billion TL.

- The size of the informal economy in Turkey is estimated to be 40% of its Gross Domestic Product. Turkey's 2022 GDP is 900 billion dollars. Accordingly, the size of Turkey's informal economy is approximately 360 billion dollars.

- Turkey ranks 15th in the world in terms of the size of its criminal economy. The country with the most black money is the USA. While Mexico is the 1st country in terms of the ratio of black money size to GDP, Turkey ranks 9th.

- It is estimated that the 20 countries with the highest sources of black money in the world have laundered approximately 3.147 billion dollars of black money in Turkey. According to IMF estimates, the money seized or thought to be laundered constitutes 10-20% of the actual source of black money.

- Turkey is the 2nd worst country after Mexico in the corruption perception index among OECD countries, with a score of 29 out of one hundred. As is known, there is a direct proportion between corruption and informality. As corruption increases in the country, informality also increases. Unfortunately, there has been a deterioration in our country's corruption perception index and corruption control index since 2016.

- Turkey was placed on the Grey list in 2021 by the Financial Action Task Force (FATF), which is affiliated with the OECD, due to deficiencies in combating money laundering and the financing of terrorism.

It would be a mistake to see the grey economy only as a simple informal activity. The grey economy means that economic activities move away from the legal framework and are carried out in an area where laws, democracy, and human rights no longer function. Therefore, the state must fight against the grey economy with all possible means. This is only possible in a modern democratic state of law.

Prof. Dr. Duran BÜLBÜL

30.10.2023