This comes at a time when the estimates of international rating agencies warn of “difficult” scenarios awaiting the Turkish economy in light of these existing policies. On the other hand, some observers argue that the successive shocks that the country’s economy has been subjected to since 2020 until now (starting with the Corona pandemic and ending with the earthquake last February, and passing through the war in Ukraine and its various consequences) were the main reason behind the pressures the economy is currently experiencing. The arena of “unconventional” policies pursued from responsibility.
However, in a practical translation of the results of the first round and its basic indications that the outgoing president is in favor of the run-off that will take place on May 28, a number of indicators have expressed widespread escalation of fears.
- Turkish assets took a hit after Erdogan defeated his rival, Kemal Kılıçdaroğlu, in the first round of voting.
- The cost of insuring Turkey’s debt against default has jumped over the past two days, and the spread on five-year credit default swaps rose to 646 basis points from 506 basis points on Friday.
- The sale of Turkish assets came as investors reversed their bets that Kılıçdar – who led opinion polls before the election – would return Turkey to traditional economic policy, undoing a raft of programs laid out by the outgoing Turkish president.
Extensive risks
In exclusive statements to the “Sky News Arabia Economy” website, Turkish economic writer Naghi Bakir comments on this by saying: “The one-man system has created a deficit in the country,” explaining that the degree of CDS (credit risk swaps) is very high, and the country’s credit rating is low.
He adds, “Moreover, the country is in dire need of foreign resources, with low foreign exchange reserves, in addition to the fact that there is excessive indebtedness and high inflation,” stressing that the country is in a difficult situation economically.
And the Turkish economic writer continues: “Erdogan does not have a plan that can improve the economy or prevent bankruptcy,” explaining that the evaluation of Turkey’s credit rating by international rating agencies is “extremely accurate.”
What do global rating agencies say?
A report recently published by the British newspaper “Financial Times” monitored a number of estimates announced by rating agencies and major financial institutions regarding the future of the Turkish economy in light of what was shown by the results of the first round.
- Moody’s credit rating agency: If Erdogan wins, unconventional and unsustainable financial policies will “continue”, with increasing risks of inflation and great pressure on the Turkish lira… while the country will return to traditional policies in the event of Kılıçdar’s victory, which will reflect positively on the sovereign credit file on the long term.
- Fitch Ratings: The report quoted one of the agency’s senior directors, Eric Arisby, as saying that Turkey’s large current account deficit, which reached a record $24 billion in the first quarter of this year, was also a “major problem”.
- A report by HSBC Monday, also noted that Turkey’s current account deficit was one of its main “weaknesses”. The bank said business data for April indicated that “there is no indication that improvement is underway in the near term”.
- Barclays analyst Erkan Erguzel predicted that the current account deficit would reach around $40 billion in the next 12 months. While Türkiye will need about 30 billion dollars to finance that deficit.
Returning to the statements of the Turkish economic writer, he refers at the same time to the rapid rise in exchange rates, after it was “reduced in extraordinary ways until the elections”, which is now inevitable.
- The aforementioned Financial Times report notes that Erdogan’s government has implemented a set of unconventional measures to stabilize the $900 billion Turkish economy.
- These measures included tight controls on companies’ transfers of foreign currencies and the launch of special savings accounts in 2021 to protect depositors from lira fluctuations, and so on.
- These tools have helped slow the lira’s decline, although the currency is still trading near a record low of 19.67 Turkish lira to the dollar.
- However, many analysts – according to the aforementioned Financial Times report – say that the value of the lira is still overvalued, in part due to these measures and the prolonged efforts made by the Central Bank to support the currency.
Bakir concludes his remarks by saying: “There will be a second round of elections… and if the opposition wins – which is probably an unlikely scenario – the economic and financial indicators will begin to improve… while the other scenario puts the country on the verge of bankruptcy and collapse,” as he put it.
What do defenders say about the policies of the Turkish president?
While the supporters of the Turkish president do not hold his economic policies responsible for the state of affairs in the country, especially in light of the stormy developments that directly and greatly affected the Turkish economy, starting with the Corona pandemic and its repercussions on the economic situation in Turkey, with the enormous challenges it posed, despite these challenges. The Turkish economy was able to grow at a rate, albeit lower than expected, but it continued to record strong activity, recording 5.9 percent in the fourth quarter of the year of the virus outbreak, and 1.8 percent in the whole year, making it one of the “few” economies in the world that avoided downturn in a pandemic year.
Also among the factors argued by supporters of the Turkish president that greatly affected the economic situation, was the war in Ukraine and its consequences that affected the economies of the entire world and created wholesale challenges, starting with the energy and food price crisis, high inflation rates, the supply chain crisis and other crises of great importance. The connection that the global economy is still paying its toll so far.
Turkey also suffered from the consequences of the devastating earthquake that struck several cities on the sixth of last February, whose economic cost exceeded $100 billion, according to United Nations estimates announced earlier by an official of the United Nations Development Programme, Louisa Fenton.
Accordingly, some observers tend to defend President Erdogan’s policies, which the Turkish president himself said earlier that they are “risky but correct policies” with regard to lowering interest rates, explaining in a previous speech to the Turkish parliament: “We have abandoned the existing monetary policies.” On high interest rates and our shift to a growth strategy based on investments, employment, production and exports… Our country will not return to a system of exploitation based on high interest rates.”
A complex economic situation… and regional and international repercussions
On the other hand, the Turkish economic journalist, Karim Olker, believes that “whoever wins the elections, the economy is in a weak state… If Kilicdar wins, he will inherit the economic crisis from Erdogan, and if Erdogan wins, he will inherit what his hands made!”
He added, “Turkey is going through the most important election period over the past half century, and I believe it is one of the most important electoral processes not only in Turkey but also in the world this year (…) Turkey is the exit gate for banned Russia, and it is also the country with the highest surplus in the account.” Trade with the European Union… Accordingly, changing politics in Turkey does not only mean our country, but also means a lot to Europe and the war in Ukraine and the Middle East region, especially Syria.
He points out that “Turkey is not economically strong in this process,” with reference to the economic situation, highlighting some of the challenges that the Turkish economy is experiencing as follows:
- The bill for the recent earthquake is between $100 and $150 billion, according to a number of estimates.
- The introduction of the retirement system at an early age has placed economic burdens of billions of dollars on the country’s economy.
- The government maintains calm by continuously providing social assistance to the public.
- Türkiye looks like an unemployed person living a luxurious life and renovating his property and car. Lots of junk spending relying on debt.
- Over the past 20 years, Turkey has not been able to obtain new investments of more than $1 billion at a time. Large investments have been canceled or left the country.
Ulker believes that “the Turkish economy – under these circumstances – cannot grow, and even if that happens, it will not be reflected on the public; with high inflation rates that make life more difficult,” in addition to unemployment rates, especially since “investments usually enter the country.” They are not purchases, which means they do not create new job opportunities,” according to Ulker.
He stresses that “Turkey should have been the most popular investment country in the world, and Western manufacturers fleeing Russia can come to Turkey, but they will not come if the administration does not change,” as he put it, believing at the same time that “if Erdogan wins, it will start Western countries to take strict measures and warnings about Russia .. Perhaps embargoes or sanctions seem inevitable options in this context.
It is reported that net foreign assets in Turkey fell to $13 billion from $1.4 billion a year ago, according to central bank data. These figures include billions of dollars in money borrowed from the local banking system through short-term lending tools known as “swaps”.
economic collapses
In the context, Zahid Gul, editor-in-chief of the Turkish Independent, says in exclusive statements to “Sky News Arabia Economy” that “the economic issue was the most important issue that was discussed before the elections, because we are talking about clear economic collapses during the past years,” reviewing some Among the aspects of these collapses are as follows:
- The Turkish currency has lost nearly 70 percent of its value over the past three years.
- Inflation is at its highest.
- Unemployment rates have risen sharply (there is an official unemployment figure, and an unofficial figure issued by fairly independent institutions).
- It is estimated that unemployment numbers are higher among university youth.
- A very clear decline in per capita income in Turkey, and perhaps this is the first election that Erdogan is running, and the Turkish per capita income has declined significantly.
Gul talks about the shrinking middle class that represents the majority of Turkish society and state employees, a class that “now clearly feels poverty, and that its savings have ended in recent years.”
At the same time, the Turkish journalist points out, “It is certain that Erdogan did not present a new vision in this context, and he did not give hope except through public promises, as he did not present to us that he would be based on a new economic program, while the opposition presented it in this context.”
Gul touches on the results of the first round of the elections, pointing out that “the obsession with identity and Turkish nationalists in general are the biggest winners in the elections, and with Erdogan’s chances in the second round, we can talk about the fact that the economic reality will not change and may, of course, get worse, as evidenced by the performance of the stock market indices during The past days, as well as bonds related to the debts of the Turkish state (..)”.
And the editor-in-chief of the Turkish Independent concludes his remarks to “Sky News Arabia Economy,” saying: “Accordingly, we are facing an economic problem whose results, repercussions, and negative manifestations we will see, especially as we are talking about electoral promises that it is not known how the state will work to achieve them, whether the opposition rules.” Or the government (..) We are also on the verge of local elections in March 2024, that is, less than a year from now, and we will see whether this time the balance of the economy will play a role or will the matter remain as it is now.
#Rating #agencies #paint #pessimistic #picture #Turkish #economy. #reasons