Turkey (Turkiye) Economic Crisis

The economic issues in Turkey keep getting worse. This year, its monthly average deficit in
foreign trade has surpassed $10 billion. The nation's average gross energy imports increased
from $4-5 billion per month to $8-9 billion as a result of the substantial increase in global
energy costs brought on by Russia's invasion of Ukraine. This summer's rebound in tourism
and a decrease in energy imports haven't made up for it, and the current account deficit—
the gap between imports and exports of all kinds of goods and services—keeps growing. The
imbalance was $7.8 billion as of Aug, according to the most recent data, and this tendency
might get worse in the coming months. For the next year, a $40 billion deficit is anticipated.
In addition to the trade deficit, short-term external debt looms large. In the next year,
$182,4 billion must be repaid or rolled over. In the next year, Turkey needs $220 billion. The
dollar's strengthening against the euro also hurts Turkey's external balance. Turkey's exports
and tourism revenues are predominantly in euros, whereas its debt and imports are in
dollars. The external deficit is growing, all else being equal.
The CBRT's gross FX and gold reserves amount $92.7 billion. Net reserves are $6.2 billion
when foreign currency liabilities are removed. Most of its reserves aren't CBRT-owned.
Instead, Qatar, the UAE, South Korea, and China control $26.4 billion. Turkey's commercial
banks hold $32.2 billion. Net reserves are nearly $50 billion after deducting these and
existing swap agreements. As a result, the CBRT can't control the Turkish lira's devaluation
by selling FX reserves. Most of Turkey's $41.2 billion in gold reserves are not in a financial
centre like London or New York, making borrowing difficult.

The upcoming election is the government's top priority, although the economy is making
this more challenging. More stimulus is required to boost people' spending power because
the economy is slowing down. Real credit growth and increased government spending are
the two main strategies to achieve this. However, both instruments will have a negative side
effect of increasing foreign exchange demand while simultaneously promoting economic
growth. Therefore, the government aims to restrict the doors to speculators who borrow TL
and engage in FX trading and only offer credit channels for the actual economy.

If the government continues with its current policies, output will abruptly stop, drop
significantly, and there will be a credit crunch that will cause loans to drop rapidly.
Therefore, there would be a sharp increase in unemployment along with runaway inflation
and currency devaluation. According to recent polls, the president's chances of being
reelected are not good. The societal tension will only grow if early elections are avoided.
The Turkish economy is going in a terrible second half of the year, with severe and
unavoidable political repercussions. Up to the upcoming elections in June 2023, maintaining
economic stability will be next to impossible.