Lira decline after the spring of peace .. What effects on the Turkish economy?

Zaher Bey-Ankara

Since the start of the Turkish spring peace operation in northern Syria, the Turkish lira has continued to fall following US and European moves to impose sanctions on Ankara.

The drop comes at the height of the currency crisis and the country's debt inflation, sparking new financial worries that are adversely affecting an economic recovery after a year of deflation.

The Turkish lira lost 5% of its value this month against the dollar, crossing the 5.90 barrier from 5.6 before the "Spring of Peace" operation, making it the worst performer among major currencies in October as most emerging market currencies appreciated.

Previous stations
US President Donald Trump has warned of "enormous sanctions on the way to Turkey" after threatening to "wipe out" its economy if Ankara's attack on Kurdish-led forces in Syria goes too far.

European governments have also agreed to reduce arms exports to Turkey, but without declaring a formal EU ban.

The Turkish currency shows an extreme sensitivity to foreign crises, as the exchange rate of the lira had previously set back in previous tensions related to the Ankara crisis with Moscow over the backing of Turkish fighter jets Russian Sukhoi plane in 2014.

Since then, the lira's exchange rate has collapsed on five occasions, most of which have been linked with Washington on a number of issues, including the arrest of US pastor Bronson, and Turkey's remarkable rejection of US recognition of Jerusalem as Israel's capital.

Investor concerns
The military operation east of the Euphrates is creating new uncertainties for the Turkish economy, threatening any data based on the economic impact of the crisis since last year, and contributing to fears that military expenditures will lead to The Treasury's deficit is aggravated, fueling borrowing needs that can be used in another way to stimulate the economy.

The researcher is likely to continue to fall in light of the economic uncertainty fueled by the process, which prompted the owners of savings to seek safety in hard currency.

"Foreign investment in Turkish stocks could help offset these losses, but foreign investors have already lost their appetite in the Turkish market before the operation," Ismail told Al Jazeera Net.

According to Turkish Central Bank data, the stock market saw net foreign sales of $ 1.6 billion in the first nine months of this year, barely better than net foreign sales of $ 2.3 billion in the same period last year.

The economist suggested that the decline in the lira and increase the risk premium will hinder the central bank's recent tendency to cut interest rates, pointing out that the monetary policy board of the bank may have to raise interest rates at its meeting on October 24 because high returns are a way to attract foreign funds , Especially in government bonds.

Inflation
Ismail stressed that the decline of the lira will make imports more expensive, which in turn will fuel inflation at a time when all the economic plans of the Turkish government to control it, and threaten the unrest with new blows on consumption and domestic investments, which would hinder economic growth clearly, and will be the most important result of such This setback is an increase in the unemployment rate, which has already reached 14%, with some 4.5 million people looking for jobs.

"The public debt burden is another area of ​​trouble, which has swelled significantly over the past two years as a result of the government's expansionist policies aimed at mitigating the effects of the economic crisis."

He pointed out that efforts to manage the gaps have resulted in a series of large price increases on services and public goods, including electricity, gas, roads, bridges, trains and postal services, and the authorities may consider new price increases if they need funding if the process drags on.

The economic journalist in Sabah newspaper said that 60% of the total internal debt of the government was obtained from Turkish banks, which means that banks will be under pressure to finance the treasury instead of opening credit channels to the private sector, which needs loans to revive investments and increase production, and competition for funds between the government The private sector will be an obstacle to economic growth.

It is believed that the Turkish government will succeed in stopping the currency bleeding by fixing or raising interest rates, in addition to temporarily raising fees for some services to finance the balance sheet deficit.

Economic data

- The country's credit default swap index - a key risk indicator - rose from about 350 points at the beginning of October to about 400 points in the same month, the second day of the operation, and such a high-risk premium, according to economists, means Borrowing has become more difficult and more expensive for Turkey.

- According to official figures, the budget deficit amounted to about 90 billion pounds (15.2 billion dollars) in the first nine months of the year, exceeding the target of 80.6 billion pounds this year, set by the Minister of the Treasury and Finance Berat Albayrak recently.

- Observers said that the value of domestic debt due in 2020 is estimated at 300 billion pounds ($ 51 billion) at present, and there will be an additional funding gap arising from the budget, which is expected to reach about 90 billion pounds under the impact of increased military expenditures As a result of the military operation, Ankara will have an internal debt of 400 billion lira ($ 67.4 billion) to run next year, and the seriousness of this figure is that it amounts to about 60% of the total domestic debt of 692 billion lira ($ 116.6 billion) at the end of Last August.

- JP Morgan rated the lira as the most exposed currency to political volatility, and warned Goldman Sachs about geopolitical risks and domestic economic policy.

- Deutsche Bank cut its "positive" outlook on Turkish fixed income instruments, Oxford Economics cut its outlook for Turkey, while Rabo Bank last week questioned whether the lira was on the verge of a new "currency crisis."