Saddled with two-thirds of the country’s external debt stock, the Turkish private sector is going through a rough patch amid the slump of the Turkish lira, which has badly exacerbated foreign loan liabilities. Nonfinancial or real sector companies, in particular, are losing sleep each time foreign exchange prices go up, as they hold 36% of Turkey’s external debt, which totaled $434 billion in 2019.

For companies indebted in hard currency, the uptick in exchange rates means they need to put larger sums in liras aside to repay their loans, which, in turn, means accumulating foreign exchange losses. In its first inflation report for the year, the central bank outlines the scale of the corporate ordeal, based on a study of the balance sheets of about 300,000 companies. Accordingly, foreign exchange losses have come to account for up to 14% of the costs of companies in recent years. Beyond this average figure, the ratio reaches up to 30% in some sectors and companies. 

The report indicates that companies involved in big infrastructure projects such as airports, bridges, motorways and hospital complexes — built as public-private partnerships and touted as “megaprojects” by the ruling Justice and Development Party (AKP) — stand out among those with the most ravaging foreign exchange losses. The damage is of concern to taxpayers, too, since the financing of the projects has been guaranteed by the treasury. How financing risks were calculated and why the calculations went awry is an issue that deserves separate questioning and analysis, but what is already clear is that the country is faced with a hefty bill. 

How the borrowing spree came to this point is equally important to diagnose.