Turkey’s external debt, per capita income and “standard of living”

Professor Dr. Binhan Elif Yılmaz’s article provides a detailed analysis of Turkey’s external debt, its effects on the population, and the relationship between a country’s debt and its citizens’ standard of living. She explains that per capita external debt represents the share of a country’s total external debt assigned to each individual, calculated by dividing the total external debt by the population. However, Yılmaz notes that in practice, individuals are not responsible for repaying their country’s debt, and per capita external debt reflects a country’s creditworthiness rather than the citizens’ ability to repay it.

Between 2017 and 2021, Turkey’s external debt stock remained stable at around $450 billion, largely due to economic instabilities and reduced private sector debt. However, by 2024, the gross external debt had risen to $525 billion, with the external debt to national income ratio reaching about 40%. Yılmaz highlights that the global crisis significantly increased Turkey’s external debt burden, particularly in the years 2008-2009, when the ratio of external debt to national income rose from 35% to 45%, and per capita national income fell sharply.

From 2010 to 2017, the ratio of gross external debt to GDP increased from 40% to nearly 50%, with the private sector contributing significantly to this rise, accounting for two-thirds of the total external debt. This private debt includes Treasury-guaranteed loans, meaning that if the private sector defaults, the public sector may bear the cost, ultimately impacting taxpayers. By 2024, per capita external debt in Turkey had surpassed $6,100, while per capita national income remained relatively stagnant, projected to be around $13,000.

Yılmaz also draws a comparison with France, where despite a high level of public debt, citizens continue to enjoy a high standard of living. This is because France’s debt is denominated in its own currency (Euro) and largely borrowed from the EU at low interest rates. The example of France underscores that a heavily indebted country can still maintain a high quality of life for its citizens, a situation that is not the case in Turkey, where factors like currency instability and high borrowing costs make the burden of external debt more pronounced.

The article concludes by acknowledging the paradox of a “borrowed state with wealthy citizens.” While Turkey’s external debt burden continues to grow, the French example demonstrates that a country can have substantial debt without significantly impacting its citizens’ living standards. The contrast highlights the importance of factors like currency stability and borrowing conditions in determining the impact of national debt on a country’s population.

Conclusion:

Professor Yılmaz’s article sheds light on the complexities of external debt, emphasizing the relationship between national debt, per capita income, and citizens’ living standards. While Turkey’s increasing external debt burdens its economy, the example of France illustrates that a high debt load does not necessarily translate into lower living standards, especially if the debt is managed in a stable currency with favorable borrowing conditions. However, the situation in Turkey is more challenging, with growing external debt and a slow recovery in per capita national income.

SOURCE: ekonomim. com (edited)

NOTE: What is Per Capita National Income?

Per capita national income is a measure obtained by dividing a country’s total national income by the number of people living in that country. It is used to gauge the economic well-being and standard of living of a country. Per capita national income is typically calculated on an annual basis and is often used for international comparisons.

A high per capita national income generally indicates a higher standard of living and more economic opportunities.

An increase in per capita national income is typically seen as a sign of economic development in a country. However, a high per capita national income does not always mean that income inequality has been addressed. A country may have a high per capita national income, but the income could be concentrated in only a small portion of the population. Therefore, per capita national income alone is not a sufficient indicator of a country’s overall welfare.

Income inequality can show that per capita national income does not always reflect the true level of prosperity in a country.