Country Report | Turkey is roiled by political uncertainty and slowing growth ahead of November elections.

Author: Justin Keay

Many worry that increased tensions following Ankara’s new assault on the PKK—and the specter of Daesh attacks in tourist areas—could take a further toll on visits this year. Indeed, revenues might actually be closer to $30 billion than the hoped for $35 billion.

Leading figures in the hospitality industry say the promotional focus for tourism should shift to highly specific destinations to attract visitors, rather than touting the country in general.

In a report released in July, the IMF warned that despite recent positives, including lower oil prices, which are immensely beneficial to a such a large net energy importer, Turkey remains vulnerable to a reversal in capital flows, particularly within corporates where foreign debt obligations are considerable and largely dollar-denominated. On the plus side however, although commercial debts remain high, the public debt-to-GDP ratio is a low 33%, and the bank sector looks pretty robust: Capitalization is around 15% with nonperforming loans at 3%, a fraction of the level prevailing in other emerging markets.

“The good news is that if market sentiment turns against Turkey further, the country does have buffers to prevent this impacting too much on its economy,” says Bojan Markovic, lead regional economist in Istanbul for the European Bank for Reconstruction and Development.

The interim government, which assumed power in late August and will govern until November’s poll, has said it will continue to do whatever it takes to sustain Turkey’s economy. Among its first measures was an easing of consumer loan conditions in an effort to boost domestic demand. 

Other officials are working hard to boost Turkey’s prospects. Mehmet Büyükekşi, head of the Turkish Exporters Assembly, said the organization was looking to hike exports to Iran and was also planning high-scale trade missions to other countries that are not normally on Turkish exporters’ radar. That list includes the Philippines and Nigeria, as well as the countries of Southern Africa.

Political outcome may not be conducive to reforms that could gradually revitalize economic growth...

~ Paul Gamble, Fitch Ratings

And despite concerns about Turkey’s continuing access to large-scale international capital, the country’s ambitious infrastructure plans show few signs of slowing. In August, Istanbul’s mayor, Kadir Topbaş, said tenders would be held for subway lines between Ataköy-İkitelli on the European side and Dudullu-Bostanci on the Asian, which will represent a major step in the ongoing modernization of the city’s infrastructure.

The biggest hurdle will be restoring and sustaining confidence in an economy whose underlying growth motors—strong domestic demand and infusions of foreign capital—appear to have run out of steam.

“Consumer confidence figures, which are at their lowest since March 2009, show that Turkey has taken a hit from all the negative domestic and geopolitical factors, whilst the ongoing decline of the lira is also badly hitting sentiment,” says Gamble of Fitch.

Investors were disheartened when Ali Babacan, the respected deputy PM in charge of Economy, stepped down. Challenges for his successor include unemployment, currently around 10%, and low female participation in the workforce. Addressing that problem has been a low priority, owing to religious beliefs held by some political leaders. The low level of domestic savings, which reinforces Turkey’s dependence on foreign capital, is another concern. Gamble says the authorities know what needs to be done, as evidenced by the “Priority Transformation Program” that is aimed at boosting reforms in key areas.

First, he says, political uncertainty must abate.

“There are any number of outcomes from the November elections, including the possibility that a new government doesn’t actually get formed until next year. Until things become clearer, it will be hard to make any real predictions about the implementation of the much-needed structural reforms that could help revitalize growth.” Data Summary: Turkey

Central Bank: Central Bank of the Republic of Turkey

International Reserves                 

$132.666 billion

Gross Domestic Product (GDP)

$806.108 billion

Real GDP Growth




GDP Per Capita—Current Prices


GDP—Composition By Sector*  








Public Debt (general government
gross debt as a % of GDP)




Government Bond Ratings
(foreign currency)

Standard & Poor’s


Moody’s Outlook

FDI Inflows

$16,171 million

$13,224 million

$12,866 million

* Estimates                                                                            
Source: Country Economic Reports



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