Turkish lira crisis likely to continue
EXPERTS FORESEE INVESTORS REMAINING CAUTIOUS AS STRUCTURAL ISSUES DOMINATE The devaluation of the Turkish currency pushed inflation high, thereby limiting companies’ abilities to repay foreign debts.
■ Contraction in Turkish economy in fourth quarter Decline in Turkish lira’s value against the dollar last year the contraction is expected to continue this year. The International Monetary Fund (IMF) has put its estimate at around 2.5 per cent.
Turkey’s lira was the second worst performing currency in an emerging market, after the Argentine peso, which fell 57 per cent last year, said economists.
Among other currencies, the Brazilian real lost 15 per cent, the South African rand shed 12 per cent and the Russian rouble slid 11.74 per cent, said Jameel Ahmad, global head of currency strategy and market research at FXTM, a global foreign exchange broker.
“Emerging market currency weakness has been a widespread theme on a global level since early last year, but only a few developing markets have seen the weakness that the Turkish lira has experienced during this period,” Ahmad told Gulf News.
Though the currency weakness encouraged an economic recession, one sector in the Turkish economy came out as a winner in the crisis, he said.
“When it comes to tourism, you would naturally expect the sector to benefit from such abrupt weakness in a currency. Visitors to Turkey for tourism are now getting approximately a 30 per cent discount on their trip [priced in US dollar terms] when compared to what the valuation of the lira would have been before 2018,” Ahmad said.
Nevertheless, it is still too early to comment on the impact of the currency crisis on the competitiveness of other sectors in the Turkish economy, including exports and foreign direct investment (FDI).
“The Turkish lira weakness reflects macro uncertainties that are going to also impact the inflows, especially longterm investment. So while exports of goods and services are becoming more competitive, we do not envisage many companies moving to Turkey at this point,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.
“Until there is a greater clarity on the economic and political backdrop, we see foreign investors remaining cautious,” she told Gulf News. “An external weakness of the Turkish economy has historically been the reliance on portfolios flows, with FDI levels weak.”
Exports
Ankara’s exports depend on foreign currency, and the fact that Turkey imports energy resources, namely oil, and some parts for its industrial sectors, increases the impact of the currency crisis on the economy, experts said.
“The third point, if you analyse the Turkish debt in detail, it mostly belongs to the private sector,” Bacik said. “So having this very bad currency crisis is really troubling [for those] financing the debt. It is not going to work for them.”
Some reports and websites say Turkey has become a hub for plastic surgery in the Middle East region, a fact that many observers relate to the currency crisis, which has boosted the competitiveness of Turkey in the field.
However experts, including Bacik, say such attractiveness is not sufficient to deal with the crisis.
Bacik said although Turkey has also become a hub for dentistry, the country “needs billions of dollars” to deal with its economic crisis.