Concerned over deepening financial woes, Turkey’s Central Bank held a closed-door internal workshop Feb. 20 to discuss the real sector’s foreign currency debt and related risks, Al-Monitor has learned. A document presented at the workshop and made available to Al-Monitor by a senior bureaucrat who attended the gathering underscores that “the exchange rate risk of real sector companies is significant and the natural and financial safeguards against this risk are limited.” According to the document, the real sector’s debt stock has reached $347 billion, or about 50% of gross domestic product (GDP).
One of the Turkish economy’s structural realities is that private companies have limited equity capital, relying heavily on domestic and external loans to roll over their operations. The Central Bank notes that $208 billion, or 60%, of the debt burden of real sector companies stems from foreign currency loans. This is a vital problem, given the Turkish lira’s dramatic depreciation against the dollar over the past several months. The debt burden of the companies has become heftier because the dollar is now much more expensive.
A striking detail in the data is that the companies’ foreign currency debt has multiplied in less than a decade. In 2009, their net foreign exchange deficit stood at only $70 billion, increasing 197% to reach the current $208 billion figure. Why the companies were not cautioned while taking such big risks remains a mystery.
The Central Bank draws attention also to the sectoral breakdown of companies indebted in foreign currency, noting that only 26% of the debt belongs to the manufacturing industry, which has the potential to export goods and thus earn foreign exchange. Meanwhile, the share of the construction sector and its complementary sector — the real estate business — has reached 20%. Obviously, the construction and real estate sectors have a limited foreign exchange earning capacity. While their spending on imported inputs such as machines and construction materials has increased, real estate sales to foreigners remain at about $2 billion to $3 billion per year. Hence, construction and real estate, along with energy, are the main sectors exacerbating Turkey’s current account deficit.
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