Strong dollar weighing down on indebted Türkiye

Turkish economy had long benefited from a stronger euro than the dollar
Strong dollar weighing down on indebted Türkiye
People pass in front of a cryptocurrency shop in Istanbul, Turkey

The euro’s fall to parity with the dollar is putting new strains on Türkiye’s foreign trade, tourism, and external debt liabilities, threatening to stir up the country’s raging inflation even further.

The Turkish economy, which had long benefited from a stronger euro than the dollar, is now in jeopardy as the tide turns. Its vulnerabilities are primarily due to the dramatic drop in the Turkish lira as a result of Ankara’s controversial economic policies, which include obstinacy in keeping interest rates low despite a dizzying rise in inflation.

The rise of the dollar against the euro puts additional strains on countries such as Türkiye, which earns most of its foreign currency in euros but spends and incurs most of its foreign currency liabilities in dollars. Some countries have raised interest rates to protect their currencies from the dollar’s strengthening appeal, but Türkiye has effectively removed that instrument from its toolbox, risking heavy losses from the euro’s downturn.

The euro’s slide bears also on Türkiye’s $451.2 billion external debt stock, including $132.1 billion in short-term liabilities and $319.1 billion in long-term debt, according to official figures for the first quarter of the year. Some 44.3 percent of the short-term debt is in dollars, while 25.9 percent is in euros. Dollar liabilities represent an even bigger share of the long-term debt. Overall, 58 percent of Türkiye’s external debt stock is denominated in dollars and 30 percent in euros.

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