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Turkey’s construction boom: A blessing or a curse?

The Turkish construction sector’s contribution to the local economy has almost caught up with that of the manufacturing industry, but this is hardly a reason to celebrate.
The sun rises behind the Bosphorus Bridge (L) and the construction site of the new Camlica Mosque in Istanbul, Turkey, February 3, 2016. REUTERS/Murad Sezer - RTX257J9

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.

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