Turkey is a founding member of the OECD and G20.

The country's economy

ranked as the 17th-largest in the world and 7th-largest in Europe by nominal GDP
in 2023. It also ranked as the 11th-largest in the world and 5th-largest in Europe by
PPP in 2023. According to the IMF, as of 2022, Turkey had an upper-middle
income, mixed-market, emerging economy. Turkey has often been defined as a
newly industrialized country since the turn of the 21st century. The country is the
fourth most visited destination in the world, and has over 1,500 R&D centres
established both by multinational and national firms. Turkey is among the world's
leading producers of agricultural products, textiles, motor vehicles, transportation
equipment, construction materials, consumer electronics, and home appliances.
Over the past 20 years, there have been major developments in the financial and
social aspects of Turkey's economy, such as increases in employment and average
income since 2000. A period of strong economic growth between 2002 and 2013
(except for 2009) was followed by a slowdown in growth in terms of USD-based
nominal GDP figures between 2014 and 2020, especially during the 2018 Turkish
currency and debt crisis, although the growth sustained in these years as well in
terms of nominal GDP. Furthermore, there has been a steady recovery and a faster
pace in growth in Turkey's GDP figures since 2021, which have reached their all-
time highest values by the end of 2023. Growth-focused financial policies, such as
the preference to keep interest rates as low as possible (dubbed Erdoganomics)
have led to high inflation in recent years.
As of November 2023, there are 1,086,670 registered companies based in Turkey.
The sector with the highest number of companies registered in the country is
Manufacturing with 241,362 companies. This is followed by Wholesale Trade and
Services with 197,476 and 187,325 companies respectively.
Agricultural sector
The Ataturk Dam is the largest of the 22 dams in the Southeastern Anatolia Project.
The program includes 22 dams, 19 hydraulic power plants, and the irrigation of
1.82 million hectares of land. The total cost of the project is estimated at $32
billion.
These paragraphs are an excerpt from Agriculture in Turkey.
Agriculture is still an important sector of Turkey's economy, and the country is one
of the world's top ten agricultural producers. Wheat, sugar beet, milk, poultry,
cotton, vegetables and fruit are major products; and Turkey is the world's largest
grower of hazelnuts, apricots, and oregano.
Half of Turkey's land is agricultural, and farming employs about 15% of the
workforce, but under half a million farmers. It provides about 10% of exports and
over 5% of gross domestic product (GDP). Over 380 billion lira of agricultural
subsidy is budgeted for 2024.
Despite being a major food producer, Turkey is a net wheat importer, with much of
it coming from Russia and Ukraine. Turkey is the European Union (EU)'s fourth
largest vegetable supplier and the seventh largest fruit supplier. Turkey would like
to extend the EU Customs Union Agreement to agricultural products.
Around half of Turkey's agricultural greenhouse gas is due to cattle. According to
the World Bank, the sector should adapt more to climate change in Turkey and
make technical improvements. Strategic planning is the responsibility of the
Ministry of Agriculture and Forestry, but no plan for 2024 onwards has yet been
published. Almost all the seeds used in Turkey are produced domestically. Turkiye
is the 19th largest economy in the world, with a GDP of roughly $906 billion. It is a
member of the OECD and the G20, and an increasingly important donor of official
development assistance (ODA).
Turkiye pursued ambitious reforms and enjoyed high growth rates between 2006
and 2017 that propelled the country to the higher reaches of upper-middle-income
status and reduced poverty. The share of people below the $6.85 per day poverty
line nearly halved to 9.8% between 2006 and 2020.
However, productivity growth has slowed as reform momentum has waned over
the past decade, and efforts have turned to supporting growth with credit booms
and demand stimulus, intensifying internal and external vulnerabilities. High
private sector debt, persistent current account deficits, high inflation, and high
unemployment have been exacerbated by macro-financial instability since August
2018.
In an extension of the strong COVID-19 pandemic recovery, the economy grew at
5.6% in 2022. However, the economy has been losing momentum amidst a
deteriorating external environment and heterodox monetary policies. Two
devastating earthquakes struck on February 6, 2023: beyond the human tragedy,
physical damage in 11 provinces accounting for 16.4% of Turkiye’s population and
9.4% of its economy. Direct losses are estimated at $34.2 billion, but the
reconstruction needs could be double. The earthquakes added pressures to an
increasingly fragile macro-financial situation. Pre-election spending and
reconstruction efforts are expected to support growth, which is forecast at 3.2% in
2023 and 4.3% in 2024. ISTANBUL -- Turkey's gross domestic product grew 4.5%
in 2023, pushing the size of the economy past $1 trillion for the first time.
The expansion stems from strong household consumption, which constitutes
around 60% of the country's GDP. Financial and insurance activities grew 9%
while the construction sector grew 7.8%.
Per capita GDP was $13,110, also the highest on record.
A member of the G20 group of industrialized and emerging markets, Turkey's
annual growth has slightly surpassed a government forecast for a 4.4% expansion.
A Reuters poll of 30 economists showed median growth of 4.3%.
The Turkish economy had expanded 5.5% on an annual basis in 2022. This was on
the back of an ultra-low real negative interest rate policy at the behest of President
Recep Tayyip Erdogan, despite soaring inflation.
The policy also created imbalances and drained foreign reserves as the central bank
tried to defend the lira, spurring fears of a balance-of-payment crisis.
On the political front, the "growth at all costs" policy helped Erdogan win
presidential and parliamentary elections last May.
After his electoral victories, the president named Mehmet Simsek, a former Wall
Street banker, as finance minister and consented to a policy U-turn that pointed
Turkey in an economically orthodox direction.
"Turkey has no choice but to return to rational ground," Simsek said at the time.
The country also gained a new central bank governor after the election who
immediately began raising rates. By January, the bank's policy rate had been
increased by 36.5 percentage points to 45%. At that time, annual inflation in the
nation of more than 85 million stood at 65%.
The central bank expects inflation to peak above 70% in May and then fall to 36%
by the end of this year.
Turkey suffered two devastating earthquakes that killed more than 50.000 people in
February 2023, which is estimated to have cost the country more than $100 billion.
Serkan Gonencler, chief economist of local Gedik Investment, said he expects the
economy to grow at a slower pace this year, around 2%, below a median of 2.9% in
a Reuters poll and well below the government's expectations for a 4% expansion.
He believes the central bank might need to raise rates further after local elections
on March 31. "We need much stronger tightening to rein in domestic demand to
cool inflation and increase the allure of lira savings rather than boosting
consumption," he said.
He added that there will not be much room for fiscal tightening in 2024 due to
earthquake-related expenditures.
Gonencler said the largest risk for 2024 is that policymakers lose patience and
move too soon to cut interest rates or adopt other policies to boost demand for loans
in the name of stoking growth.
"There is not much room for a rate cut until year-end," Gonencler said, estimating
that inflation would reach 42% to 45% by the end of the year. "To reach future
sustainable growth, we need to sacrifice growth now to support the disinflation
process." Physical distancing measures, the implementation of which in early 2020,
precipitated the Great Lockdown of spring 2020, had a dramatic impact on
economies across the globe. After authorities acknowledged their inability to
contain the pandemic, stock markets collapsed in several advanced capitalist
countries. Government efforts to manage the pandemic and measures from central
banks, particularly the US Fed, forced a revision of the doomsday predictions that
have forecasted an economic collapse on a par with the Great Depression. Even so,
2020 is expected to end with a considerable contraction in global gross domestic
product.
Turkey was still exiting the severe economic crisis of 2018-19, the effects of which
lingered into early 2020, when it was hit hard by the COVID-19 pandemic. Public
finances had already suffered a huge blow with the economic crisis, while many
suffered further at the onset of the pandemic as the volume of government
economic support and social expenditure remained minuscule compared to other
countries. What is more, Turkey’s responses to the pandemic have sown the seeds
of future problems which the country will have to reckon with in the medium to
long term. After briefly evaluating the impact of the 2018-19 crisis, the study will
analyse the economic slump and Turkey’s responses to the pandemic, underlining
the insufficiency of the government’s measures to contain the long-term economic
effects of the virus. The change in global financial conditions after 2013 forced
Turkish economic and financial actors to offer higher interest rates so as to
maintain the pace of capital inflows. Despite efforts to hedge their risks, large
capital groups struggled to access cheap sources of finance. Against this backdrop,
the complications of the accumulation regime became increasingly visible. Two
groups in particular suffered under the changing financial circumstances: The first
was the Turkish corporate sector, especially energy firms, who earned revenues in
liras but held debt mainly in foreign currencies. The second was small and
medium-scale enterprises (SMEs), including those that provide intermediary goods
to large capital groups. Such SMEs, which operate with small profit margins, had
become accustomed to postponing their financing problems via state-sponsored
cheap credit.
The latest GDP data shows that growth totalled only 0.9 during the year 2019.
Turkey’s credit expansion ahead of a constitutional referendum in 2017 had
increased the fragility of the economy even before the global financial tightening of
2018. By spring 2018, Turkey was suffering from high unemployment and huge
current account deficits, while its growth rate had fallen to almost zero.
Geopolitical tensions accelerated capital outflows, making it impossible to slow
down the tempo of currency depreciation. During the first eight months of 2018,
the TRY depreciated by a whopping forty percent against the US dollar.
Policymakers had to increase the policy interest rate rapidly in September, which
made a severe recession in the second half of 2018 all but inevitable. Following
these interest rate increases, policymakers attempted to stimulate domestic demand
by reducing tax ratios on particular goods, offering indebted households
opportunities to restructure credit card debt and forcing banks and corporations to
agree to renewed negotiations so as to increase the volume of restructured
corporate debt. However, meaningful solutions to major problems, such as
declining reserves, skyrocketing bad loans and higher unemployment rates, were
merely postponed to the following year. In the end, the Turkish economy recorded
almost no growth in 2019.
Credit campaigns, which relied heavily on state banks, only managed to stave off
economic contraction in 2019. Still, the changing global financial conditions, such
as a rapid decline in interest rates from mid-2019 onwards, aided the monetary
policy of the Erdoğan administration. Turkey’s monetary authorities also had
success in ensuring currency stability in 2019, albeit at the cost of depleting the
Central Bank’s reserves. The Central Bank of the Republic of Turkey (CB) started
conducting swap operations on the Istanbul Stock Exchange, with lira-settled
forward foreign exchange transactions compensating for the loss of reserves.
Nevertheless, when these foreign exchange and off balance-sheet liabilities were
subtracted, the CB’s net reserves were close to zero by May 2019 (more on CB
reserves below).
The dwindling reserves meant that the CB lacked defences against currency
attacks, something that explains the persistent pressure on the TRY despite relative
currency stability in 2019. To make matters worse for the CB, foreign exchange
deposits by residents exceeded 193 billion USD in 2019. It meant that more than
half of the deposits in the banking sector were in foreign currencies at that time.
With the CB running low on reserves and Turkish households choosing to hoard
USD, the corporate sector busied itself by trying to pay off foreign exchange debts,
making it harder to use resources for new investment. Turkey’s model, it seemed,
faced a dead end, as the government also failed to stimulate the economy by
making households borrow more. Despite declining interest rates in the second half
of 2019, rates remained far too high for precarious low-income workers to increase
their debts without major concerns.
2 The Erdoğan administration sought to reassure the international financial
community by prescribing (...)
3 This study does not cover the loss of employment and unemployment statistics.
For an analysis of la (...)
4 See Güngen, A. R. (2020) ‘Turkey’s Financial Slide: Discipline by Credit in the
last Decade of the (...)
7In summary, the COVID-19 pandemic hit Turkey’s economy hard after two years
of turbulence and exacerbated economic problems. Focusing on the 2018-19 crisis
is important in two respects. First, the 2018-19 crisis, its legacy and the
management of the crisis2 comprised the major reasons why Turkey experienced
greater economic turbulence in spring 2020 compared to some major emerging
markets. Turkey suffered from the biggest drop in employment3 in its history in
those months, while the credit-led accumulation model underlies the country’s
recurrent problems. Second, the management of the 2018-19 crisis (and, to some
extent, the credit expansion campaigns of the post-2013 period) provided a
blueprint for official responses during the pandemic. Due to the relative success of
previous campaigns, Turkey has mainly responded to the COVID-19 collapse by
expanding credit and offering extra loans to households and SMEs.
After officially acknowledging the first COVID-19 case in the second week of
March, the Erdoğan administration announced an Economic Stability Shield
package and took its first economic measures. Partial lockdowns and social
distancing measures, along with curfews in 31 provinces, in April and May
precipitated a huge economic slump, the extent of which can be observed in Graph
1 below. The change in the uninterrupted line during the period t+7 shows the
change in the second quarter of 2020, according to Turkstat data. It is striking that
the 2018-19 crisis, despite its severity, resulted in a milder contraction compared to
Turkey’s 2001 crisis and 2008-09 economic collapse. It should also be noted that
the 2020 pandemic prevented the start of a new cycle in early 2020, despite the
previous uses of public banks and state financial muscle following the 2018-19
crisis.

In the main, state managers responded to the pandemic5 by delaying loan

repayments, deferring social security premium payments, stabilising the TRY and
providing cheap credits (to both households and distressed SMEs) to help them
postpone their financial problems. The coming years will show whether the
simultaneous pursuit of these goals, as well as the current management of the
economic problems, will bring success. The Stability Shield Package which
Turkey’s leaders announced on March 18, 2020, deferred loan repayments for
shopkeepers for three months (later extended to six months), postponed social
security premium payments in selected sectors and expanded the Credit Guarantee
Fund limit to 50 billion TRY, among other measures. One surprising move was the
cut in the ratio of value added tax on air travel. Business organisations explicitly
helped prepare this first package, which comprised two main problems. First, there
was an unrealistic assumption that Turkey’s economy was resilient enough to
overcome the hurdles that accompanied the pandemic. Since there was no public
discussion on the possible medium to long-term impact of such an economic slump,
the measures were recycled from responses to past economic crises. Second, there
was an over-reliance on state-sponsored credit expansion. Stemming from the crisis
management practices of previous years, policymakers believed credit expansion
would mitigate the slump and kick-start a rapid recovery, despite the questionable
effects of this response during previous episodes of financial volatility and
economic turbulence.

11As of mid-September 2020, the number of COVID-19 patients in Turkey had

exceeded 300,000, while the death toll had reached 7,500. During the first six
months of the pandemic, the economic impact was most dramatic in April and
May. Turkey ‘reopenedʼ its economy in June, a move that will compensate
somewhat for the quarterly GDP decline of 9.9 percent in the third quarter of 2020.
At first sight, the V-shaped economic recovery confirms the initial economic policy
response, yet the Turkish economy still suffers from structural problems due to the
way it is integrated into the world economy. Furthermore, it is not possible for
Turkey to extricate itself from its slump without suffering additional impact to
future economic activity. Not only has the pandemic swept across the global south
and north, its cost continues to increase and expose the vulnerabilities of those
countries, like Turkey, which occupies the lower echelons of the international
division of labour. Turkey’s economic growth relies heavily on capital inflows and
easy access to new sources of finance. Due to dependent financialisation, global
financial conditions will continue to have a strong impact on Turkish economic
activity. In the first four months of 2020, capital outflows from the global south
exceeded the levels of outflows during the 2008-09 international financial crisis. In
response, monetary authorities resorted to the CB’s reserves. According to the
balance of payments statistics, Turkish reserves declined by 31 billion USD in the
first seven months of 2020. During the first few months of the pandemic, the
negative impact of physical distancing measures in some sectors was intensified by
capital outflows. In equity markets, meanwhile, capital outflows exceeded 3 billion
USD from March to July. During the same period, 11 billion USD exited Turkish
bond markets. In the near future, it is safe to expect new rounds of corporate debt
restructuring that will resemble those of 2018-19. Turkish corporations were
mainly net debt payers in 2018-19, and the capital outflows during the pandemic
have made it harder for corporations to roll over debt. Still, from March to July,
banks and private sector corporations repaid 12 billion USD in loans. Ultimately,
though, it was only monetary expansion and credit campaigns that averted
bankruptcies.