Experts' Comments

Turkey between Coronavirus Crisis and Economic Recession Challenge

EPC | 14 Sep 2020

Turkey between Coronavirus Crisis and Economic Recession Challenge

As the rest of world countries, Turkey has been hit by the Coronavirus pandemic and its social and economic consequences. This crisis has added an additional burden for the country as Turkish economy already suffers from the depreciation of the Turkish Lira, an increasing inflation, unemployment and debt. It has also intensified political struggle in the country in light of the debate regarding the performance of President Recep Tayyip Erdogan and the Justice and Development Party government in managing the crisis, as well as, Turkey’s involvement in regional conflicts, especially in Syria and Libya. The Emirates Policy center (EPC) has recently organized a webinar, in which a select of Turkish experts took part to discuss these and other topics. The following are some excerpts of their interventions.

Atilla Yesilada

Atilla Yesilada

The Turkish government lacked transparency in dealing with the COVID-19 crisis. The number of cases announced by Ankara was not accurate and lacked any reference to cases among Syrian and Kurdish refugees. A potential second wave of COVID-19 infections is expected during the fourth quarter of 2020. This will not only lead to a shock for Turkey’s health care system only, but to a psychological and economic shock as well.

As far as economic consequences are concerned, the current Covid-19 crisis has demonstrated the vulnerability of the Turkish growth model based on foreign borrowing. The country’s debt is estimated to total $ 437 billion with $170 billion due this year. In other words, the only way for President Erdogan to resolve this crisis is to resort to the International Monetary Fund (IMF). However, the Turkish President does not wish to take this path, because any agreement with IMF will force him to implement political and economic reforms that he does not like.

Even with Turkey signing the currency swap deal with China and Qatar, this will not help solve Turkey’s economic crisis, and huge debts as these agreements are merely cosmetic measures. To be sure, Erdogan is no longer in the eyes of the public the President who can achieve progress and prosperity for the Turkish people.

Dr. Atilla Yesilada is co-founder of Istanbul Analytics and an international expert in Turkey’s economic and political affairs.

M. Murat Kubilay

M. Murat Kubilay

Turkey’s economy was strongly hit by the Coronavirus crisis particularly in trade, services, transport and tourism sectors. For example, the tourism sector generated about $30 billion in returns in 2019. However, these revenues are expected to drop to $10 billion only in 2020.

In addition to investment outflows due to the Coronavirus crisis, the Turkish lira has depreciated rapidly. Its value has dropped by 15% since January 2020 despite the big cash the central bank has pumped into the market to keep the value of the currency high. The real foreign exchange reserves in the central bank have dropped below zero (minus $ 2 billion). Reportedly, Turkish banks are currently unable to give new loans to Turkish companies which are already in debt distress. Put simply, most of Turkish companies face the risk of bankruptcy.

While IMF expects a contraction of the Turkish economy by 5% this year, it is unlikely that IMF or other international financial institutions will rapidly step in to save Turkey from its economic crisis because there is a clear want for trust and credibility for President Erdogan. In light of all of this, it is expected that Turkey will witness political turmoil late this year or early next year due to the worsening economic problem.

Dr. Mustapha Murad Koblai is a Turkish financial expert and economist, and independent consultant for a number of sovereign wealth funds and companies operating in Turkey.

Omer Taspinar

Omer Taspinar

The toughest thing facing Turkish President Recep Tayyip Erdogan now is economic recession. It is likely that this recession will last for a long time, which means that Erdogan and his ruling party will face a big challenge in the 2023 presidential and parliamentary elections.

In anticipation of a potential evolvement of the economic crisis and to reduce the chances of forging a united alliance against him that includes major opposition parties and new parties that split from the ruling party, Erdogan might opt for early elections. However, the coronavirus crisis and its subsequent economic repercussions might eventually lead to a drastic change in Turkey’s political landscape at the near term like what has happened in 2001 when the Justice and Development Party came to power due to the economic crisis that hit Turkey then.

At this point, it is expected that Ankara will remain involved in regional conflicts, especially in Syria, Libya and the Eastern Mediterranean. President Erdogan, however, might fabricate an external crisis, whether with Greece or the Kurdish Workers’ Party in Northern Iraq, to divert attention away from the economic crisis and increase nationalist mobilization behind his leadership in a way that serves his interest in case of early elections.     

Dr. Omer Taspinar is a Senior Fellow at Brookings Institute and Professor of National Security Strategy at the U.S. National War College in Washington D.C.