Turkey: Tourism And Remittances fallout
LIKE MOST countries, the coronavirus has been a rollercoaster ride for Turkey. In mid-April, the number of new cases was soaring. However, the implementation of strict lockdown procedures brought the situation under control and the government began to reopen the economy by late May. Unfortunately, as is often the case, the relaxation of socialdistancing rules led to a new round of infections this month. This has been added to two other problems brought on by the coronavirus. The first is the decline in remittances. Approximately, 6.5 million Turks live abroad, with most of them residing in Western Europe, and they are an important source of hard currency, both in the form of transfers and as a source of investment funds. Many immigrants deposit their savings in Turkish branches scattered across Europe, especially Germany and the Netherlands. These deposits are an important source of liquidity for the Turkish financial system. Unfortunately, many Turkish immigrants work in the service sector, which has been hit hard by the onset of the pandemic. The second problem created by the disease is the collapse in tourism. Turkey is an important summer destination, particularly for Germans and Russians. The cessation of flights has been a devastating blow for the small and medium businesses that thrived on tourism. Not surprisingly, these problems have led to a deterioration of the current account balance. Although Turkey had managed to post a small current account surplus of 0.2 per cent of GDP last year, it has dipped back into the red. Moreover, it is expected to reach 2.4 per cent of GDP next year and more than 3 per cent of GDP in 2022. The deterioration of the current account balance, along with heightened risk aversion, has led to pressure on the Turkish lira. The central bank has tried to stem the devaluation through heavy intervention in the foreign exchange market. As a result, the currency has only lost about 11 per cent this year, but the central bank has also suffered a meaningful decline in reserves. This has forced it to rely on more heterodox controls, but it has also raised concerns about whether the country is headed for another balance of payments crisis. One of the perennial worries