As Turkey heads to crunch presidential and parliamentary elections next month, volatilities in foreign exchange prices, seen as a major economic barometer, are shaping economic forecasts for both the pre-election and post-election periods.

Since the beginning of the year, the Turkish lira has lost some 10% of its value against the dollar, with the price of the greenback reaching up to 4.3 liras. This means that Turkey’s foreign-exchange liabilities have been swelling in terms of Turkish liras, fueling anxiety and panic among economic actors. In the broader context, lack of confidence in the lira means lack of confidence in the country’s economic management.

The more the supply of foreign exchange shrinks, the more prices increase. Structural reasons for this include that Turkey’s foreign exchange shortage owes to the inadequacy of industries that earn foreign exchange, and the country’s reliance on imports, meaning Turkey needs to borrow to cover external deficits. Unlike previous years, however, the flow of external funds, including loans, has significantly slowed.

With domestic actors struggling to roll over external debts and some creditors pulling out of Turkey, confidence in the lira at home has been waning, fueling a flight to hard currencies, namely the dollar and the euro. Thus, a mounting demand for foreign exchange amid a shortage in supply has kept fueling hard currency prices.