Foreign investors may have become complacent about Turkey’s large corporate debt load, its current account deficit and shrinking reserves, Paul McNamara, who oversees $11 billion at GAM asset management, told Bloomberg.
Turkey’s situation is starting to ring alarm bells akin to the Asian debt crisis of 1997, McNamara said. While Turkish banks aren’t having problems rolling over their foreign debt obligations, “if it happens, it will happen very fast and that’s very critical,” he said, according to the news wire.
Some of Turkey’s largest corporations are struggling to service their foreign debt, asking banks to restructure billions of dollars in loans, after the lira plunged to a record low against the dollar, making repayments more expensive in local currency terms. Turkish economic growth, 7.4 percent last year, has come at the expense of a widening current account deficit and inflation of more than 10 percent as the government stimulated the economy.
“Turkey is ticking all the boxes: large FX debt on corporates, current account deficit, reserves shrinking,” McNamara said.
Turkish businesses had a record $336 billion of foreign debt at the end of January and when netted against foreign-exchange assets, the shortfall was a record $222 billion, Bloomberg’s Asli Kandemir and Onur Ant said.
Turkey’s gross foreign debt stood at 53.3 percent of GDP at the end of 2017, the highest level since 2002, when President Recep Tayyip Erdogan’s party won power on the back of a damaging financial crisis.
Turkey’s net foreign currency reserves stand at just $26.6 billion, the lowest since 2016. Gross reserves, which include foreign currency deposited by banks, totaled $83.1 billion. Although the central bank says it could tap into banks’ reserves if needed, some analysts question that, saying it would effectively be confiscating the money, Kandemir and Ant said.