Turkey’s lira, which has suffered two currency crises since 2018, fell for the
sixth-straight day in July, the longest losing streak since mid-May. The lira was
trading down 0.3 percent at 17.28 per dollar in Istanbul on July 07, 2022. The
currency has lost almost a quarter of its value this year after sliding by 44 percent
in 2021.Market is rife with concerns that the TL will lose more value due to the
questioning of the adequacy of the Central Bank of the Republic of Turkey (CBRT)
reserves.
CBRT weekly data is keenly watched by the analyst. Bankers calculate a
decrease in foreign exchange deposits of around $3.5 billion, most of which is
corporate-related. Due to the activity experienced in euro/dollar and gold/dollar
parities in June 22 end, the data will also be followed in an adjusted way. Further,
Brent crude’s closest futures barrel price is trading just above $100 after
experiencing its biggest daily loss since March at 10 percent this week. According
to the calculations of economists, an increase/decrease of 10 dollars in Brent oil
increases/decreases Turkey’s annual energy imports by 4.5-6 billion dollars.
Whether the drop in oil prices caused by the global recession will be permanent
or not is being monitored to calculate the level at which Turkey’s 50 billion dollar
energy bill will occur in the coming period.The energy bill is followed because it is
decisive on the foreign exchange balance in the current policy.
In the first quarter of 2022, (as of March 31, 2022), the Ministry of Treasury
and Finance announced the data on gross and net external debt stock, Treasury
guaranteed external debt stock and public net debt stock, and European Union
(EU) defined general government debt stock.Accordingly, Turkey’s gross external
debt stock stood at $451.2 billion as of March 31, while its net external debt stock
stood at $231.4 billion.Accordingly, Turkey’s gross external debt stock was
realized as 451.2 billion dollars, while the ratio of stock to national income was
56.8 percent.
Weekly Money and Bank Statistics published CBRT in July 2022, show that
the gross reserve of the CBRT was 100.9 billion in last week of June 2022. This
amount was at the level of 101.9 billion dollars just the previous week. Thus, the
Central Bank’s total reserves decreased by 994 million dollars in the week of July
1 compared to the previous week, from 101 billion 936 million dollars to 100 billion
942 million dollars.
The latest lira slump, combined with soaring global energy and food prices
means inflation is now at 70% and rising, while emergency measures Ankara
adopted at the height of 2021 turmoil are about to be seriously tested. Authorities
managed to avert a full-blown implosion in December 2021, by selling currency
reserves and creating special bank accounts protecting savers and corporates
from large lira falls in an effort to discourage hoarding of Dollars, Euros or gold.
Turkish opposition parties allege that the government controlled Turkish
Statistical Institute (TUIK) has been announcing supressed inflation rates. For
June 2022, TUIK announced the monthly inflation as 4.95 percent, whereas, the
annual inflation as per TUIK, stood at 78.6 percent. On the other hand,Turkey
Inflation Research Group (ENAG), a collective of leading independent
academicians, announced annual inflation as 175.55%. Erdogan’s government
defends that the fallout from the war in Ukraine has delayed efforts to balance the
current account with a combination of credit, exports and targeted investments.
The central bank says inflation will cool by year-end. Still, the sky-high energy and
food prices, along with the lira’s drop and 50% domestic lending growth, are
driving inflation towards triple digits. ENAG has warned that the government is
causing the destruction of the middle class by prioritizing economic growth figures
and refusing to adopt measures to tackle soaring inflation.
The Union of Chambers and Commodity Exchanges of Turkey (TOBB) said
in its latest report that the number of companies shut down increased by 259.7
percent in May 2022, compared to May 2021, as the country is experiencing its
worst economic crisis in almost two decades.
With accelerated drop in the central bank’s foreign reserves, rising external
financing costs and unstoppable inflation, economists fear that the financial crisis
can get worse. President Erdogan was forced to announce, a second minimum
wage hike, rise by 30 percent, effective from July 1 for a second time this year, as
citizens struggle to keep up with soaring inflation.The monthly net minimum salary
will be 5,500 Turkish Liras ($328), Erdogan said during a televised press
conference on July 1.The minimum wage has increased by some 95 percent since
the beginning of the year with this move.While the raise could mitigate the
discontent that’s taken root among struggling working-class families, it could also
fuel already high inflation.
BUPAR Research Company, in face-to-face interviews with 1532 people in
13 provinces of Turkey, asked the AKP government’s interim increase in the
minimum wage for citizens. Citizens were also asked whether the minimum wage,
which was increased to 5 thousand 500 TL, was sufficient. According to the
responses, 81.7% of the participants found the hike insufficient. For the question,
“Can citizens live on minimum wage?” While 95.7 percent of the respondents said
“No” to the question, only 4.3 answered “Yes”. Turkey is seeing an increase in the
number of children who are forced to work on the streets. President of the Izmir
Vendors Association, said that 100 thousand of the 350 thousand peddlers in the
city of Izmir are children, and that the state does not take care of them.After the
closure of schools, students were forced to work on the streets to contribute to the
household budget due to the economic crisis, instead of taking a vacation.These
children, who sell mussels, water and corn, work for an average of 100 liras a day
without any social security. 50 lira goes to his expenses and with the 50 lira they
earns, they contribute to his house in these economic conditions.While there are
talents among them who can become doctors, lawyers, politicians and scientists
of the future, they are devastated by these impossibilities and the economic crisis.
With ever increasing inflation, dwindling foreign currency reserves, wrong
monetary policies and the depreciation of the Turkish Lira against the foreign
currency, Turkey is facing a full blown economic crisis. The Financial Times wrote
that the current crisis is the biggest threat that will ‘keep Erdogan from victory’ in
the elections scheduled for 2023. Presidential and general elections are due in
June 2023, but if Erdogan feels that his chances are high, he can call for early
elections. In the recent polls, it was noted that the voting rate of Erdogan and his
allies was 32 percent, whereas the opposition bloc was around 37 percent without
the People’s Democratic Party (HDP), a Kurdish Party, and could rise to 48
percent with the HDP’s inclusion. Many of the AKP supporters have started feeling
sorry for the current state if the country. Some of them have already declared that
they would not vote in this election in order to react to the situation in the country.
The Financial Times wrote that if this move was made by millions of AKP voters,
the opposition could easily win.