Abdurrahman Yıldırım, a doyen among authors in the finance sector, comments on the forecasts for the last quarter of the year and assesses the year 2018 for Strategy. According to Yıldırım, the lowering interest rates in US and the depreciation of dollar spur the global risk appetite. With the impact of all these notions, a golden year lies ahead of Turkey

THE CONJUNTURAL problem of Turkey was the low economic growth until recently. All troubles like the deterioration of the expectations for the future, the growing political uncertainty, the export decline resulting from the geopolitical problems in export markets, the tourism industry hit by the terror attacks in cities and the embargo imposed to Turkey by Russia following the plane crisis and finally, the putsch attempt poured out. These headaches weighed first on the tourism and then on the growth and employment. The economic growth in 2016 declined to 3,1 per cent. And last year, the growth in the third quarter was replaced by 0,8 per cent contraction.

ITS COST IS 1 PER CENT OF GDP

The government chose to dope the economy in order to reorder the affairs. And it made it by loosening the fiscal policies and making concession on the budgetary discipline. The total burden of tax rebates and tax deferrals, loan incentives, debt relief surged to 1 per cent of the national income.

While the target for the ratio of the budget deficit to GDP was announced to be 1 per cent, the recent statements indicate that it’s revised to 2 per cent. Eventually, the growing deficit is financed by borrowing. Consequently, The Treasury’s Debt Service Coverage Ratio surged to 120 per cent for the first time since the year 2001. And the year end target is increased to 125 per cent.

AGAIN AN INDEBTED COUNTRY

Not only the domestic debt of Turkey but its external debt too are on the rise. The growing external debts of the private sector surged to the highest level with 412,4 billion dollars in the first quarter of the year since the crisis in 2001. The ratio of external debts to GDP which was 54,8 per cent in 2002, dropped to 36,2 per cent in 2008. And it rose to 49,1 per cent following the global crisis. So, we are again in the category of indebted countries. We solved our problem of growth by increasing the public spending but this time, we inflated the deficit gap, the internal and external debts. The problems were replaced by others.

The external debt stock equal to 50 per cent of the national income, is low compared to the developed countries and even, it’s half of them. From this perspective, one can conclude that there’s no problem. However, the external debt ratio of the category of developing countries which we are involved in, is lower than our country’s and the ratio is around 33 per cent to GDP. Our indebtedness is approximately 50 per cent higher .

A NEED FOR AN EXTERNAL SOURCE OF 200 BILLION DOLLARS EACH YEAR

Our economy has also the highest current account deficit among the developing countries. Therefore, we are bound to the external finance. We need for an external source of 200 billion dollars each year to pay the external debt and to finance the current account deficit. No problem as long as the foreign sources keep pumping this money. However, our economy will inevitably contract when we cannot get this source or we cannot get at affordable cost.

We are lucky as the global conjuncture continues to favor us. FED deciding to halt the monetary expansion, couldn’t implement yet the second phase which is the monetary tightening. The interest rate hikes are shelved as the political future of Trump remains uncertain.

A GOLDEN YEAR FOR TURKEY

The lowering interest rates in US and the depreciation of dollar spur the global risk appetite. Several fields, markets and countries benefit from this situation. But mostly, Turkey takes opportunity from this picture as a country with a high need for the global capital. The opinion is that FED will not rise the interest rates until November 2018 when the mid-term elections will be held in US. If we don’t face any global crisis arising from US or another country and expanding to the world, Turkey will have gained a golden year.

We are solving the conjunctural problems but the structural problems of the economy remain there. And in order to concentrate on these issues, we need a five-year execution period without elections.