The price of the Turkish lira against the dollar is close to historic lows at 20.07 lira per dollar. As for inflation, it reached 44% last April, after recording record highs in October 2022 at 85.5%, according to the Turkish Institute of Statistics.
In its decision issued late last week, the Turkish Central Bank kept interest rates unchanged for the third month in a row, after cutting them by half a percentage point last February, the Turkish Central Bank having decided to fix the interest rate on the Turkish lira at 8.5%.
According to the World Bank report published last April, the Turkish economy is expected to grow by 3.2% in 2023, instead of previous expectations which indicated growth of only 2.7%. The World Bank also raised its expectation for the growth of the Turkish economy for the year 2024 to 4.3% instead of 4% previously, and expected a rate of 4.1% in 2025.
The international report predicts that the earthquake that struck Turkey last February would result in losses of around $34.2 billion.
The government has been unable to achieve the economic stability it promised
Economist Dr. Imad al-Din al-Musabih, Professor of Economics at Arab East Faculties, said in his interview with “Sky News Arabia Economy”: “The Turkish economy is currently facing many challenges , including the continued decline in the value of the Turkish lira, high inflation and declining productivity, and so far the government has not been able to achieve the economic stability it promised, and it still faces many challenges to improve the country’s economic situation, including taking serious measures to fight inflation, promote economic growth and boost investment confidence in Turkey.
Also, work to improve institutional conditions and enhance transparency and accountability in the public and private sectors, and if the government can achieve these goals, the Turkish economy can witness a positive transformation in the future.
During the first years of President Recep Tayyip Erdogan’s tenure until 2013, the Turkish economy performed well, with an average GDP growth of 6% per year, partly thanks to the government’s emphasis on infrastructure investment and exports. Gross domestic product growth has slowed to an average of 3% per year, influenced by many factors, including the Syrian refugee crisis, the global economic slowdown and political uncertainty, according to Dr Al-Musabih.
6 expected future steps
Currently, the Turkish economy faces a set of challenges, according to Dr. Al-Musabbah, including: High inflation rate, falling Turkish lira exchange rate, high unemployment rates, foreign debt, looming geopolitical risks
Economist Dr. Al-Musabih points out: “The future prospects of the Turkish economy are uncertain, but if the Turkish government can meet the challenges it faces, the Turkish economy has the potential to grow at a rapid pace. healthy. However, if this does not happen, the country risks facing a long period of crisis.” Economic stagnation, and what is expected of the government, which will be in the shadow of a parliament with a comfortable majority of the Justice and Development Party and its allies, is to act quickly and at an undeniable pace, on: Stimulate domestic demand, support exports, improve the business environment, attract foreign investment, implement structural reform policies and finally, strengthen transparency and accountability.
Growing investor concern
For his part, the economist, Dr. Abdullah Al-Shennawi, said in his interview with “Sky News Arabia”: “There is no doubt that the 2023 elections in Turkey are among the most important events in its history. , given the many problems plaguing the Turkish economy, represented by the sharp depreciation of the pound.Increasingly in recent years, which has fallen by around 50% in just one year, the high cost of living caused by the high rate of inflation and other factors, the decline in Turkey’s foreign currency reserves, the rate of decline of which is exacerbated by the Turkish lira stabilization measures, as well as the growing anxiety of bond investors. The Turkish government – due to uncertainty – about the ability of the Turkish government to pay its debts, and the higher value of Turkish imports than the value of its exports, resulting in a current account deficit.
unconventional economic policies
Despite concerns and worries about the cost of living in Turkey, Recep Tayyip Erdogan managed to win a new presidential term, and support was not withdrawn from him in the elections, despite the unconventional economic policies he adopts , represented by moving away from the policy of raising interest rates, which has contributed to the high rate of inflation and the high cost of food and other essentials, according to Dr El-Shennawy, who explained that Erdogan’s insistence on lowering interest rates to boost economic growth has led to a weakening in the value of the lira, which has fallen almost 80% against the dollar in the past five years.
And economist Al-Shennawy added: “Therefore, some stakeholders and investors fear that Erdogan’s victory will lead to more economic instability with the high inflation rate and the continued depreciation of the lira at its lowest level, and the strain on Turkish sovereign debt”. centers and bank debts, and this fear is due to the insistence of his assistants on technocratic economists not to raise interest rates to support economic growth, and despite this, it can be said that the Turkish economy – according to World Bank reports – over the past five years has made efforts and followed an approach to sustain economic growth by making leaps in the volume of credit and adopting policies to encourage and stimulate demand Although prices increased by 105.19% in April compared to April last year, and increased by around 30% at the start of 2023.
What is Erdogan waiting for?
Dr El-Shennawy summarizes six challenges facing the Turkish President: Double the value of the currency. Double Turkey’s foreign exchange reserves. The chaos in the banking sector created by the tangle of regulations enforced by his team of expert technocrats. Reconstruction of cities damaged by earthquakes. The extent to which auditing standards can be used for construction standards. Inflation and high cost of living.
Expected scenarios for economic policies
As for the expected scenarios of economic policies, according to Dr. Al-Shennawy, they are represented in the first two scenarios:
– Erdogan’s continued pursuit of his unconventional economic policies of lowering interest rates and inflation in order to stimulate the Turkish economy, as he declared during the elections that he would not change this policy because he sees a direct correlation between low interest rates and low inflation. The Turkish economy has benefited from the postponement of payment for Turkish imports of Russian energy, which allows it to spend generously for the Turkish people in accordance with its promises. What supports this scenario is the expectation that Turkey will increase degrees of normalization with the West, as Turkey was strict about Finland and Sweden joining NATO, although she expressed her satisfaction with Finland, because the destination of Turkish exports is Europe. In this scenario, investors who hope to revert to traditional economic policies and make a more credible commitment to solving Turkey’s inflation problem will be disappointed, and their confidence in government bonds and the ability of the Turkish government to to repay its debts will weaken.
The second scenario is: The possibility that Erdogan reconsiders his economic policies for the Turkish Central Bank to raise interest rates, given that it is the only central bank, unlike almost the rest of the central banks, which insisted on not not increase, but rather cut interest rates from 19% to 8.5%, resulting in a higher rate Inflation rose to 84% in 24 years, August last year. Abandon attempts to raise the lira and the need to raise interest rates.
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