The increase of 3.07 Turkish liras, equivalent to a 15.4% rise, in the US dollar exchange rate until June 7th, following the elections, has burdened Turkey with a currency exchange difference of 1 trillion 409.1 billion liras in terms of external debt.
During those 8 business days, the rise in foreign currency resulted in an additional burden of 734.8 billion liras for the private sector, 573.6 billion liras for the public sector, and 100.7 billion liras for the Central Bank. Every 1 kurus increase in the dollar raises the burden of external debt on the economy by approximately 4.6 billion liras.
The burden of external debt will continue to increase parallel to the rise in the exchange rate. The currency shock, following the change in elections and economic management, the easing of pressure on the exchange rate, and the loss of intervention power for the Central Bank, which already has negative net reserves, has multiplied the burden of the country’s external debt on the national economy.
The appreciation of the US dollar against the Turkish lira over the course of eight business days has increased the Turkish external debt burden by 1.4 trillion liras. On the last business day before the elections, May 26th, the dollar stood at 19.9512 liras according to the Central Bank’s buying rate, but by June 7th, the 8th business day after the elections, it had risen to 23.0210 liras.
While the exchange rate in the free market reached even higher levels, considering the Central Bank’s rates, the dollar gained 3.07 liras, or 15.4%, against the Turkish lira during this period. In other words, there was a devaluation of 13.3% for the lira against the dollar.
The total external debt stock of Turkey, which was reported as 459 billion dollars at the end of 2022, increased to 10 trillion 567.3 billion liras from 9 trillion 158.2 billion liras, reflecting a growth of 1 trillion 409.1 billion liras in Turkish lira terms during this period of currency shock.
Consequently, as a result of this high rate of devaluation in the short term, an additional burden of over 1.4 trillion liras has been placed on the national economy from the external debt front, at least for now. Every 1 kurus increase in the dollar raises the burden of external debt on the economy by approximately 4.6 billion liras. If the exchange rate continues to rise, the burden of external debt will continue to increase.
The private sector bore the biggest burden
Out of the total external debt stock, which amounts to 239.4 billion dollars, the largest portion, 151.8 billion dollars, belongs to the real sector firms, while private banks and other financial institutions hold 87.6 billion dollars. The total external debt belonging to the public sector, including general administration, public banks, public economic enterprises (KİT), and other public institutions, amounts to 186.9 billion dollars. The Central Bank also has 32.8 billion dollars of external debt.
During these 8 business days, the private sector assumed the largest burden in terms of the exchange rate difference. The 15.4% increase in the exchange rate resulted in an additional burden of 734.8 billion liras for the private sector, 573.6 billion liras for the public sector, and 100.7 billion liras for the Central Bank. During this period, the exchange rate difference amounted to 466 billion liras for the real sector institutions, and 268.9 billion liras for private banks and financial institutions.
In the public sector, the general administration (central government and local administrations) took the largest burden with a 360.8 billion lira increase in the Turkish lira equivalent of the debt. The burden on public banks and financial institutions increased by 169 billion liras, while KİT and other public institutions saw a burden increase of 39.7 billion liras.
58% of the external debt is in dollars
Out of the total external debt stock of 459 billion dollars reported by Turkey at the end of 2022, 366.5 billion dollars, or 58.1%, consists of debts denominated in US dollars. Euro-denominated external debt amounts to 132.2 billion dollars, accounting for 28.8% of the total. The remaining 3.8% is in Turkish liras, 1.6% in Special Drawing Rights (SDR), 1.2% in Japanese Yen, and 6.5% in other currencies.
Significant repayments until the local
Meanwhile, as of March 2023, during the one-year period leading up to the local elections in March 2024, Turkey has an external debt repayment obligation of $203.3 billion based on the remaining maturity. Out of this amount, the private sector will be responsible for $121.3 billion, with $68.1 billion to be paid by real sector institutions and $53.1 billion by private banks and financial institutions. The public sector has an obligation of $42.7 billion, and the Central Bank has $39.3 billion in repayments. The 15.4% increase in the dollar exchange rate over the past 8 business days has raised the Turkish lira equivalent of these repayments to 624.1 billion liras. If the rapid rise in the exchange rate continues, this burden will continue to grow.
The article was written by dunya.com author Naki Bakır