Turkey rejects concerns over fragile economy, trumpeting COVID-19 aid

Turkey’s government rejected concerns about its ability to deal with the financial repercussions of the COVID-19 outbreak, saying an expanding economic aid package already rivaled those of developed economies.

The government’s financial pledges now amounted to 240 billion liras ($34.4 billion), or around 5 percent of gross domestic product, Treasury and Finance Minister Berat Albayrak said on a videoconference call with the members of the Foreign Economic Relations Board of Turkey (DEİK) on Wednesday.

Turkey is seeking to underscore its ability to overcome the impact of COVID-19 without foreign help after concerns intensified among investors and economists for economic and financial stability. The lira slid to a record low of 7.269 per dollar last week, partly due to a programme of aggressive interest rate cuts by the central bank and dwindling foreign currency reserves.

“No one should doubt that we will eliminate the effects of the COVID-19 epidemic on our economy,” the minister said.

The economic size of the programme, when including the “multiplier effect” of contributions by banks to loan facilities and other additions, was equivalent to 525 billion liras, or 11.1 percent of GDP, Albayrak said.

The steps compare with fiscal measures equivalent to 5 percent of national income in France, 4.9 percent in Germany and 1.4 percent in Italy, Albayrak said.

Some economists say Turkey should apply to the International Monetary Fund for financial help, pointing to a huge pile of corporate debt, a ravaged tourism sector and falling exports. President Recep Tayyip Erdoğan’s government has repeatedly rejected the IMF option and has sought to keep the wheels of the economy turning, announcing a relaxation of lockdown measures last week.

Turkey introduced its economic rescue programme in March, shortly after reporting its first case of the virus, with an initial pledge of 100 billion liras. The steps included guaranteeing emergency loans to corporations and tradesmen and financial aid to employees put on short working weeks. Turkey ranks ninth for COVID-19 cases globally, with 143,114 cases as of Wednesday.

Some economists and commentators have said the fiscal and monetary steps announced by the government are insufficient to deal with the outbreak of the virus and are dwarfed by those of developed countries and some other emerging markets.

Albayrak said Turkey’s ability to finance economic recovery was enhanced by its low net public debt to GDP ratio, which stood at 32.5 percent of national income, far lower than global averages.

The European Bank for Reconstruction and Development (EBRD) said on Tuesday that Turkey’s economy may shrink by 3.5 percent this year before bouncing back with 6 percent growth in 2021. The forecasts carried a significant margin of error and economic performance would depend on how long social distancing measures remain in place, it said.