Turkey struggling to find $80 billion by August, while foreign reserves evaporate
According to Reuters, about half of the 168 billion dollar obligations of Turkey in foreign currency, are due by August.
This is an astonishing finding, because they fall short of 26 billion dollars,
that is the net currency reserves of Turkey. Even worse, net currency reserves after
subtracting the obligations in currency swaps are negative (-1.5 billion dollars).
70% of these obligations are from Turkish, mainly state-related companies, such as banks,
that are ‘too big to fail’.
Why is finding currency a problem?
Normally, the country should not bother, and be able to count on three sources:
exports, tourism and bond markets.
However, the country has on top of that its own special problems – to bail out its failing banks,
that currently is just few billion dollars. However even major , supposedly healthy, banks CDS rates indicate
that there is high risk of bankruptcy (click to see) and can become a burden of up to 20% of GDP.
Covering the costs of corona virus (already planned to cost a ballooning 35 billion dollars) and the excessive costs
of the lunatic hegemonic wars of dictator Erdogan in Syria and Libya, is creating massive economic problems.
Besides , Turkey’s ability to borrow is limited, as it ranks high in terms of probability to become bankrupt,
bringing it in front of a new crisis(click here to see greekcitytimes related article).
Lets see what is the problem with the possible sources of funding
Exports
Turkey’s exports started to drop in March, on a 12 month rolling period, which is trending and is expected
to continue due to the coronavirus pandemic. If Turkey follows the trend that is happening
in other countries, then a double digit drop in exports should be expected, bringing
a 20 billion dollar shortfall in 12 months- a shortfall of a -10 billion to -15 billion
US dollars by August. While part of it should be anticipated by a decrease in imports,
overall this is going to dry up forex reserves by August.
Tourism
Turkey expected to have approximately 40 billion dollar hard currency for the Turkish economy, from tourism.
3/4ths of them (30 billion dollars) by August.
However, there is a problem with tourism.
Although last year Turkey had 52 million tourists and 34 billion dollars, the country was
‘expecting 58 million foreigners to bring $40 billion this year‘ . However, tourist arrivals had already dropped
by -67% in March, and this was during a period Turkey was boasting about ‘being ‘the only
country in the region not hit by coronavirus’.
Turkey fall short of its target by 70% in March,
which is 2 million tourists, falling short of 1.5 billion dollars only for this month.
Experts, expect a significant drop of tourism even in the forthcoming months. Under the best scenario,
tourist arrivals are expected to improve from August onwards, which means that until July,
the country will lack a significant amount of money from tourists, if compared to expected levels.
This could be anywhere between 5 and 15 billion dollars shortfall from predicted inflows for the period
until August, but the exact amount can not simply be predicted as it is subject to many uncertainties.
The bond market
Turkey could , at least in theory borrow debt for a longer period,
however, the interest rate of long-term borrowing for Turkish state is very high,
as illustrated on the following table from existing Turkish state bonds.
Indeed, Turkish borrowing in US dollars at up to 11.8% interest rate a year, is a rate that is 3% higher than
the interest rates Lehman Brothers had before it collapsed, initiating the 2008 global crisis!
Increasing expenses, may bring early bankruptcy
Turkey exagerbatted its problems with skyrocketing expenses that relate to imperialistic wars in Syria and Libya.
posting a deficit of 46.2 billion Turkish liras(click to see article).
This created a vacuum, a financial hole of -1% of GDP, in one month that is equivalent to -$6.6 billion!
This makes borrowing in foreign currency, a bit more difficult.
Conclusion
Turkey is going to have very challenging months trying to fill its 80 billion obligations by July.
Some 40 billion US dollars can be found through tourism and exports, but this is fall short of the 65 billion dollars that
was expected before the crisis. An additional 0.5-1 billion cost per month of wars in Syria and Libya,
seem to exacerbate existing situation, lead to a huge state budget hole (click to see ) and escalating the probabilities of bankruptcy.
Turkey, now is ‘proudly’ listed on the top three of countries on the brink of bankruptcy(click to see article),
as CDS rates, that indicate the country probability of bankruptcy indicate more than 30% probability in the forthcoming period.
This looks as being the most amazing achievement of President Erdogan!
It seems that the imperialistic dreams of Erdogan coupled by corona-virus effect on economy,
bring now the country closer to bankruptcy and perhaps to the doorstep of the International Monetary Fund.
