An evaluation about Turkey’s economy and high interest payments on debts

As Turkey is going through critical days in terms of economy, all concerned parties are focused on an important decision to be announced by the Central Bank on September 23, 2021. At said date, the CBRT will announce its new interest rate decision and if it will lower current rate.

The current president of CBRT had previously said (when he took office) “interest will always remain above inflation.” Most recently TUIK (Statistical Institution) has announced inflation at 19 percent. Now the question is: “Will the central bank raise its interest rate above 19 percent? Or else, as President Erdogan (who has repeatedly said that he is against interest system), has made clear, will this rate be reduced?”

(At this point we one needs to mention on the other hand that food price increases have increased by approx. forty percent – although TUIK has managed to decimate this figure at 20 percent.)

For the head of the central bank, it seems real difficult to keep his promise under these conditions. Based on his recent comments it seems as if he will also have to lower interest rates using word games, such as ”core inflation”. Having said this, it is not easy to comment that the Central Bank has been fully independent for a long time, anyway. Consequently, the reputation of this institution has often been a matter of debate (as some experts comment) – which is extremely important for foreign investors to bring resources to the country.

High interest paid for domestic and foreign debts

For example, the country has had to make incredible interest payments in the last 20 years. While 100 billion TL as interest expense was included in the 2019 budget, this figure was set at 178.5 billion TL for 2021. The target for 2023 is shown as TL 218 billion. Moreover, this figure is calculated as TL 235 billion when non-budgetary government debts are included. The interest paid by Turkey in the last 19 years is said to be about 10 times more than the total interest paid in 80 years. Of course, it is very difficult for a country that has to pay such high interest rates (according to its Normal potential budget) to stand firm on its knees.

An economy with a current account deficit of US$ 600 billion in 19 years is undoubtedly a source of great distress for every country. In order to cope with this unbearable situation many of the country’s assets were sold and large borrowing was made – and is quite doubtful if this will be of solid help in the long run, as experts voice it.

Investment in construction rather than industry

Many opinion leaders in the sector note Turkey has invested in concrete for many years as infrastructure, roads, bridges, etc., but has not been able to properly develop its industry and real economy. It has not been able to properly accomplish transition to the industrial revolutions that are currently in effect, either – such as switching to technology goods “light in weight heavy in value”

Revised forecast figures for national income

In 2008, the national income was $ 11,000 and the target for 2023 was calculated at $ 25,000. Today however current national income is about $ 8,600 and said target for 2023 has been revised as 10,700. Unfortunately, these figures clearly provide us with an idea regarding the performance of economy.

Due to above facts unfortunately, the country is said to be struggling in a spiral of debt, interest and inflation and does not radiate much hope in terms of developing its real economy. The reality is, it is something to be against interest, but in reality much more needs to be accomplished, a rational economic management to be in the first place.

To recap, the upcoming general election (due in 2023, normally) seems to be the actual hope for the country, after which all above issues can be improved for the better. Obviously the Turkish nation will have a word to say in this regard, when the time comes.