Updated: Jul 21, 2020
Turkey's economy is hitting a wall of public debt, inflation, unemployment and sectoral flaws. Drawing upon an analysis of the Turkish economic context made by the French banking company BNP Paribas, public debt constitutes the first challenge for Turkish leadership. In the past few years, Turkey's economic growth has been both continuous and alarming. It is expected to grow up 4.9% this year -compared to 3.2% in 2017. Additionally, inflation, which had already climbed to 11% in 2017, also augmented significantly in 2018 to 15% according to the IMF, and 30% from the Tukish Central Bank’s perspective. This was mainly the consequence of a depreciation of the Turkish currency, increasing import prices, and reducing the quantity of raw materials available to industry. Lastly, unemployment in Turkey is still a major issue with the unemployment rate remaining around 12%. Unemployment predominantly affects young people, 25% of whom are currently unemployed. Hence, facing this alarming overview of the turkish economy, we could be wondering: what are the ways to reverse these downward economic trends?
As the World Bank states, “Turkey’s economic and social development performance since 2000 has been impressive, leading to increased employment and incomes, making Turkey an upper-middle-income country. However, growing economic vulnerabilities and a more challenging external environment are threatening to undermine these achievements”. This is the main reason why a funding based solution has become a crucial challenge for Turkish leadership. From our perspective, initiating a loan from the World Bank could have significant and high-speed effects on the different issues mentioned previously- public debt, inflation, unemployment, and sectoral flaws.
More generally, as the World Bank mentioned itself : “Restoring stability and accelerating structural reforms could help to sustain the country’s strong achievements of the past decade and a half.”
Turkey should also find a way to overcome its energy dependance: lacking in natural resources -Turkey produces only a quarter of what it consumes in terms of hydrocarbons- the country relies mainly on imports. Most of Turkey’s energy comes from the main oil producers in the region: Russia, Iran, and Iraq. However, the geopolitical context and the complexity of the diplomatic relations with these countries make these imports potentially insecure and questionable in the long run. As seen in the graph below, the World Bank is already assisting Turkey in that sector.
Another challenge for the Turkish leadership is to become more favorable for foreign investments as history has shown that the rapid growth of developing countries like China was primarily driven by foreign investments. From our analysis, we can infer that the wise use of a “World Bank loan” would help stabilize the Turkish economy, and come with the contingencies that make a country more attractive to investors; however speculation is not sufficient enough for investors who want concrete results. As stated in Tim's article, when looking for foreign investments, Turkey should be careful from who they borrow money from. The EU and the US have to make an effort to get Turkey back into their economic sphere of influence. This tactic might be more constraining than taking in billions in loans from China with no obligations, but those loans often end with a loss of sovereignty for the borrowing country. In Sri Lanka, the government was forced to hand over one of their ports as well as 15,000 acres to China, due to their inability to pay back their surreal debt.
Thus, it is in the interest not only Turkey's sound economic development, but also of Turkey's sovereignty per say, to stray away from the easy path of quick loans in order to build a solid, sustainable economic growth.
This article was written by Martin Gilbert
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Special thanks to Professor Mark Juergensemeyer for helping with the production of this very first "country profile"
Contact him at firstname.lastname@example.org