Turkey's economic troubles mount as new year begins

The new year hasn't come with any ray of hope for Turkish President Recep Tayyip Erdogan. His troubles are only mounting. Turkey's foreign trade deficit is the latest of his worries.

Turkey's trade gap has surged beyond USD 45 billion in 2020. The month of November saw a jump of 154 per cent year-on-year. 

For November 2019, Turkey's trade deficit was USD 1.99 billion. At same time a year on, the trade deficit was USD 5.3 billion. Even when Wuhan virus pandemic impact is considered, how can foreign trade imbalance surge so much?

Experts believe that credit explosion is the reason. Some say the situation has arisen because interest rates were kept below the country's inflation.

Then there are other factors like the gold rush. Turkey's consumers stocked up on the precious metal courtesy a volatile Lira and high inflation. The rise in demand for gold led to an increase in gold imports.

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This increased Turkey's imports by 15.9 per cent to USD 21.1 billion year-on-year in November. It was driven by USD 2.66 billion in precious metal purchases including gold.

Meanwhile, the Lira lost 20 per cent against the dollar in 2020 alone.  Its value- halved. It is expected to go down further. 

More blows await Turkey's economy, from the European Union and the United States. The blows will come in the form of economic sanctions.

Erdogan is running from pillar to post. He has installed a new central bank governor, a new finance minister. But none of them seems to have a magic wand.

Experts say that Turkey's USD 760 billion economy may just narrowly avoid a contraction.

For citizens, borrowing costs have nearly doubled. Banks are now extending far less credit. There is debt, there is frustration. And there is a call for change. 

2020 was a test of Erdogan's commitment to austerity and leadership. He seemed to have failed.