Security concerns over Turkish economy rising amid political uncertainties

Turkey saw its worst terror attack on Oct. 10 in the capital Ankara, which left at least 97 dead and hundreds injured. As the nation has been mourning the losses of dozens of lives, security concerns have been rising within the country amid deepening political uncertainties and social polarization. 

It will not be possible to see the effects of the social polarization, uncertainties about the establishment of a new government after the polls on Nov. 1 and the escalating security concerns over the country’s daily life and economic matters. 

The first signs do not look that bad, as investors and financial markets still give credit to the country with the hope of seeing the establishment of political stability and the launch of a solid reform agenda after the November polls. For instance, early on Oct. 12 Turkey’s five-year credit default swaps (CDS), which is a leading indicator of sovereign debt risks, increased to 275 basis points after closing the previous week at 266. This is not a major change after such a big terror attack. 

The Turkish Lira became one of the rarest currencies which lost value at the beginning of this week due to the rising security concerns, although the losses were not more than 0.6 percent. The country’s main stock exchange started the week with losses, but it then rebounded and closed the week day with a 0.11 percent increase. 

Turkey’s fiscal discipline and positive growth trend have been praised by global economic circles. It is a real success for the country to have maintained its public debts in the last decade. The general government balance sheet is strong, fiscal discipline has been maintained and the commitment to fiscal discipline appears to be accepted across all political circles. 

This was good news, but the major “buts” start here. The country’s economic activity has been slowing down due to both local and global factors. The falling lira has pulled down consumer confidence, and the country’s current account deficit has not narrowed at the desired levels despite the oil plunge. The private sector’s debts are another problem. According to the 2015 data from the Central Bank, around 86.3 percent of Turkey’s short-term debts are from the private sector, 13 percent are from the public sector and 0.7 percent from the Central Bank. These debts need to be paid back this year, and the country’s currency saw a loss in value of around 30 percent. This huge amount represents around 40 percent of the country’s total external debt stock, $403 billion. 

These negativities will deteriorate as long as political stability is ensured. The point here is for politicians to be able to achieve this crucial goal in any election result, as several recent surveys have showed that the Nov. 1 results will not differ from the previous June elections’ results, after which a permanent cabinet was not formed. 

Now the future - if any - government is strongly expected to avoid security risks, ease social polarization and create a strict reform agenda. 

The political parties need to be able to form a government after the November polls, as they may not be offered a second chance, at least by financial circles, as the country’s existing advantages have been disappearing, including a potential production base and a “land of peace” amid countless uncertainties around. 

I hope I am not too optimistic.