Published On: Sat, Aug 8th, 2020

A most recent review of Turkish economy as Covid-19 pandemic prevails

Turkey is obviously going through real challenging times – like with many other countries – and the administration has to take solid and efficient measures, as agreed by many experts. To provide some examples; reserves are melting and due to pandemic tourism is over on top of the fact exports have almost stopped. With cheap loans, the market has been overwhelmed by the lira but investments are not increasing. Distributed loans, on the other hand, increase the demand for foreign currency. The foreign debt remains the same.

It has been 2 years since the reverend Brunson crisis, which happened in the summer of 2018. But the economy has not recovered. The economy, which shrank in the first half of 2019, was driven by interest rate cuts in the second half. Thus, the total loan volume of the banks, which fell to TL 2.40 trillion at the beginning of August last year, increased to TL 2 trillion 542 billion thanks to interest rate cuts at the end of the year.

In the second half of the year, the economy grew but this was financed by TL 142 billion of debt released. The government, which entered 2020 with a further growth target, said it would “continue its low interest rate policy.” The main measure against the Coronavirus outbreak, which began in March, was the new loan packages.

The total loan volume, which rose to TL 2.54 trillion at the end of the year from TL 2.4 trillion last year, has increased to TL 3.19 trillion as of July 17, 2020. According to the TurkStat, annual inflation is 11.7 per cent, but the volume of money put into the market through loans has been increased by 32.9 per cent. The excess money increases the demand for foreign exchange and gold, not investments. Despite all the money put on the market in the first quarter of the year, Investments declined 1.4 per cent compared to the previous year. The reserves are melting, the open position is frightening.

Meanwhile, the exchange rate against the low interest rate began to be pressured by injecting foreign currency into the market. During this time, the central bank’s reserves melted away and the foreign exchange open position of the state banks increased. The Central Bank entered this year with a gross foreign exchange reserve of $ 81.2 billion and as of July 17, 2020, its gross foreign exchange reserve has decreased to $ 49.2 billion. Moreover, the reserve size decreases to minus $ 31 billion when the assets in reserves, such as mandatory reserves and swaps, are exited. The foreign exchange open position of state-owned banks is over $ 10 billion.

The economy, which normally recovers in the summer with revenues from construction, tourism and exports, is also deprived of this resource due to the epidemic. Last year’s $ 34.5 billion in tourism revenue is expected to decline by 70 percent, with the most positive forecast. Although construction rebounded in May and June thanks to housing interest rate cuts, this is not reflected in exports. January-June period with the outbreak of the country’s exports decreased by 15 percent compared to the same period last year. Although the country shrank economically, the foreign trade deficit increased by 73 percent in January-June, compared to the same period of the previous year.

All this is followed by investors abroad, like citizens of this country. January-May period saw a net foreign capital outflow of $ 9.8 billion. There was a foreign capital inflow of $ 14.6 billion in the same period of the previous year. Foreigners are selling their shares, withdrawing from deposits and fleeing to safe havens. Almost every day, publications such as the Financial Times and The Wall Street Journal publish news of the Central Bank’s reserves. 68 percent of the total reserves are known to be trust-held swaps. Rumors of a financial crisis heading into the autumn also began to be written in the light of these data.

Public net debt, which stood at £ 296 billion in the second quarter of 2018, rose to £ 782 billion in the first quarter of this year. The increase in public net debt during the recent period became 164 percent. With the outbreak, this number is estimated to reach 1 trillion Turkish liras.

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