The Turkish economy is in the grips of serious turmoil as the country heads to early presidential and parliamentary polls next month. The government is hard-pressed to contain the woes, especially the ongoing slump of the Turkish lira and skyrocketing foreign exchange prices. In an apparent sign of desperation, the government last week introduced a controversial incentive for capital repatriation from abroad, which is effectively opening the door to illicit money.

Turkey’s 7.4% economic growth last year relied largely on government incentives that put further strains on the budget. As a result, the country, fraught with a double-digit inflation and a high unemployment rate, also faces a significant public deficit atop a giant current account gap.

The gloomy outlook, reflected in rating cuts by major international credit rating agencies, is underscored by a relentless increase in foreign exchange prices. A dollar was worth 4 Turkish liras on April 18, the day President Recep Tayyip Erdogan announced his decision to bring the elections forward to June 24. By mid-May, the dollar climbed to 4.45 liras as the national currency lost 11.2% of its value in less than a month.

The increasing demand for hard currency, which is pushing up the foreign exchange prices, is driven mainly by domestic actors, both individual and institutional, who lack confidence in Turkey’s economic prospects. Things might take an even more dramatic turn if the pullout of short-term foreign investors accelerates and further fuels the demand.