Turkey’s fragile economy poorly placed to weather COVID-19 – CNBC
After nearly two years of a weakening currency, high debt, dwindling foreign reserves, and growing unemployment, Turkey’s economy is in a particularly bad shape to deal with the COVID-19 coronavirus, CNBC said on Wednesday citing several experts.
“There will be hard times ahead, because Turkey was already at a macroeconomically vulnerable position before the coronavirus hit,” Can Selçuki, managing director of Istanbul Economics Research, told CNBC.
“Unemployment in January was already 14 percent and it will probably increase greatly due to the foreclosures because of the coronavirus,” he said.
Turkish President Recep Tayyip Erdoğan has announced funding $15 billion for businesses hit by the pandemic, as well as unemployment support and large-scale postponement of debt and mortgage payments.
But CNBC said that measures taken by Erdoğan’s government had also spooked investors, including a move on Monday to restrict the ability of foreigners to trade the lira in the offshore swaps market. The announcement saw the lira falling the furthest among emerging markets on that day.
The lira faced a crisis in 2018, and this year has seen the dollar rise against it by 13 percent. Moves by Turkey’s Central Bank to artificially prop up the lira by selling dollars has seen Turkey’s gross foreign currency reserves fall to their lowest level since 2009.
Turkey’s foreign reserves, excluding gold, amounted to $77.4 billion at the end of February, according to the International Monetary Fund (IMF). Yet Turkey’s financing requirements for 2020 are estimated at $170 billion.
“If any country experiences a sovereign debt crisis, there are risks that there might be a contagion effect to emerging markets,” Agathe Demarais, global forecasting director at the Economist Intelligence Unit, told CNBC. “That Turkey has large external financing needs, and a private sector that is highly indebted in foreign currency, compounds these risks.”
Demarais told CNBC that the EIU predicted a full-year recession in Turkey as the “large tourism sector will collapse, which will fuel pressure on the twin deficits and on the already fragile lira”, which will in turn fuel inflation.
The lira also fell after Erdoğan emphatically rejected any acceptance of support from the IMF, which many analysts say Turkey will need.
“Turkey doesn’t have the types of resources it did 10 years ago to compensate for the economic collapse of the coronavirus,” Selçuki said. “Turkey is going to need any kind of resources it can get its hands on.”