Why Turkey’s Economy Will not Collapse?
In recent months there is an analysis inflation on the reports about Turkey's Economy. In these articles where disaster scenarios placed for Turkey’s economy, a lot of erroneous data is being shared. The most interesting one among these is the article titled 'Erdogan Has Hidden an Economic Disaster Deep in Turkish Banks' on the website called Foreign Policy. In the article, it is claimed that an economic disaster took place in Turkey, and hidden by Erdogan. The article says Turkey will get unable to pay its external debts in a short while.
Are the analyses made in the article really correct? Will Turkey's economy collapse when Turkish Lira depreciated against dollar? Has Turkey’s reserves decreased so much that it cannot meet its short-term and long-term obligations? We analysed these claims with the information derived from open sources.
Turkey, after experiencing currency-based economic crises in August 2018, has implemented a new economic program and has taken important steps towards stabilization. As a matter of fact, USD/TL which increased to 7.30 in August 2018, was decreased and fluctuated at 6,00 levels between September 2018 and February 2020. And interest rates, which had increased to 24% in the same period, gradually decreased to 12% in February 2020, which helped to balance consumption and growth. As a result, the economy advanced % 4.5 in the first quarter of 2020
With the COVID-19 pandemic spread all over the world in March, Turkey's economy is adversely affected parallel to the world economy. Quarantine measures implemented to the economy and social life have led to a sharp decrease in demand and consumption all around the world. In this panic environment, while the FED was filling markets with dollars, all other central banks tried to save their economies by printing their own local currencies.
With the end of the curfew, all consumption items, especially housing and car sales, increased with the effect of low interest rates and accumulated demand. Apparently that has a positive effect for Turkey's growing economy based on consumption.
This week USD/TL is around 7.30 with a 16% sharp increase which was around 6.30 while the COVID-19 pandemic arise in March. Interest rates, which were around 12% at the early stage of the pandemic period, gradually decreased by 4 points to 8%.
Besides, Turkey's debt-to-GDP ratio stands at 30%. Currently this level is 237% in Japan, 177% in Greece, 135% in Italy, 126% in Singapore and 107% in the United States. These ratios invalidate the claim that Turkey is in a debt crisis as claimed in the article.
Unfortunately, it is not true that the claim of banks sold dollars to receive Turkish Lira in Turkey. Because the Treasury met the banks' TL requirement by issuing Government Domestic Borrowing Notes. In other saying; Banks met their TL need not by selling dollars to open markets, but by selling the domestic borrowing securities they bought from the Treasury to the Central Bank (TCMB).
Another unrealistic claim in the article is that the short term dollar debt of banks is gradually increasing. Quite the reverse; while short term dollar debt of the banking sector was around $ 13 billion in August 2018, it decreased to $ 5 billion as of August 2020.
There is also a point where the article falls into a ridiculous contradiction; In one part of the article, the authors claimed that banks' increasing dollar debt reached critical levels, while in another part of the article, they claimed that banks sold dollars to financial markets for TL. It is impossible for these two situations to be seen at the same time considering the functioning of the banking system.
As seen on the reliable data, Turkey is not in neither a debt crisis or in a reserve shortage. Moreover, the short-term external debt-to-GDP ratio is also quite balanced compared to developing or developed countries. These findings prove that this and similar articles were not written by qualified authors. Contrarily it raises the concern that it is not written by well-meaning people.