Friday, 17 May, 2024
By: Yash Gupte
Although independent analysts believe the most recent figure still hides how terrible the country's cost-of-living issue is, inflation in Turkey touched a startling 85 percent in October before slowing to 44 percent last month. Image Source: IANS
Investors have been concerned about the sustainability of Turkey's unconventional economic policies as a result of the country's adoption of an Erdogan-supported low-rate strategy.
Recep Tayyip Erdogan, the president of Turkey, was re-elected on Sunday, passing the most difficult test of his two decades of more rigid control. Following the failure of both Erdogan and Klçdarolu, the head of the opposition Republican People's Party, to garner more than 50 percent of the vote in the first round of voting on May 14, voters went back to the polls for the runoff election. Klçdarolu, the joint candidate of a coalition of rival parties, promised to turn the nation back towards democracy. This election appeared to be a chance for change for many people who were tired of Erdogan’s religiously strict administration. Since 2002, Erdogan's AK Party has held sway. That same year, he was appointed prime minister, and he took office as president in 2014.
After a campaign dominated by the aftermath of the terrible earthquake this year and the nation's economic unrest, Erdogan had fallen behind in the polls. However, he was in the lead after the first round of voting and narrowly missed winning it all. The stark cost-of-living problem and a backlash against the millions of Syrian refugees dominated the conversation as both candidates tried to establish their nationalist credentials before the runoff. In an effort to win over voters before the first round, Erdogan raised wages and pensions and reduced electricity and gas prices, all the while running a divisive campaign in which he called the opposition "drunkards" who collaborated with "terrorists." In addition, he criticised it for protecting LGBTQ rights, which he claimed posed a threat to traditional family values.
Many around the world were surprised by the re-election of Erdogan to the topmost position due to worsening economic crisis in Turkey and the increasing cost of living. Experts and analysts are of the opinion that the re-election of Erdogan is not a good sign for Turkey’s economy. On Wednesday, the Turkish lira plunged to a new record low against the dollar as President Tayyip Erdogan was ready to decide on the composition of his new government and the course of economic policy in the wake of his election victory. The lira dropped around 1.5 percent to a record low of 20.75 against the dollar on its third straight day of declines, bringing this year's losses to almost 10 percent. Investors have been concerned about the sustainability of Turkey's unconventional economic policies as a result of the country's adoption of an Erdogan-supported low-rate strategy.
Source: Google Finance
The Turkish Lira has been continuously depreciating against the US dollar since last year. Since the start of the year, the lira's value has now decreased by nearly 40 percent. Any economy would be severely devalued by this, but Turkey's situation is particularly dire for a number of reasons. For starters, the decline in the lira will soon be reflected in an increase in inflation, which even by official accounts is already circling around 20 percent. It doesn't help that a large portion of the economy is dependent on US currency. According to current estimates, a 10 percent drop in the value of the lira relative to the US dollar causes inflation to climb by about two percentage points. It appears that inflation still has a long way to go. The effects will be most noticeable there since raw materials and products used in manufacturing make up roughly 70 percent of Turkey's imports. Among the difficulties is that Turkey has to import most of its energy.
Source: www.worlddata.info
Although independent analysts believe the most recent figure still hides how terrible the country's cost-of-living issue is, inflation in Turkey touched a startling 85 percent in October before slowing to 44 percent last month. As a result, individuals there are having difficulty paying increasing rent and purchasing necessities. According to Turkish President Tayyip Erdogan, the government is committed to taking action to safeguard residents from excessive inflation and would reduce it to single digits to lessen the burden on them. Erdogan declared that the government would bring investment to Turkey after winning the presidential runoff on Sunday while speaking at the annual general meeting of the Union of Chambers and Commodity Exchanges.
Apart from the grave economic crisis, Erdogan and Turkey continue to face some new as well as old challenges. The resettlement of the Syrian refugees in Turkey, crackdown on LGBTQ community and the devastation caused by the earthquake. Despite accusations that the government's response was sluggish and incompetent, Erdogan won by a wide margin in the provinces that were severely hit by the earthquake that occurred on February 6 and claimed about 50,000 lives. Voters supported the president in nine out of the 11 provinces impacted by the earthquake, including the particularly hard-hit Hatay. Erdogan declared in his victory address that his government would prioritise rebuilding efforts. According to the World Bank, the earthquake resulted in "direct damages" of $34.2 billion, which is equal to 4 percent of Turkey's GDP in 2021. According to it, the expenditures of recovery and restoration could reach twice that amount.
According to the Finance Ministry, Turkey's central government budget saw a deficit of 47.22 billion lira ($2.46 billion) in March, and the cumulative deficit for 2023 has already increased to 250 billion lira, largely as a result of disastrous earthquakes. According to the report, the primary balance, which does not include interest payments, recorded a deficit of 2.15 billion lira in March, bringing the total deficit for the first three months to 149.37 billion lira. After the February earthquakes that shook southern Turkey, the budget deficit grew significantly at a time when President Tayyip Erdogan was already dealing with significant economic difficulties.
The budget deficit has increased as a result of the government's aggressive actions to reduce the economic impact of the earthquakes, including deferring debt payments and providing wages and assistance to quake victims. According to economists, government expenditure on reconstruction and relief initiatives might push the budget deficit to GDP ratio to 5 percent this year, up from Ankara's predicted 3.5 percent in September. Despite broadening recently, it was roughly one percent in 2022.
