The World Bank (WB) has recently published the 6th series of the Turkish Economic Monitoring Report, titled “February 2022, Rowing Against the Current”. An X-ray of the Turkish economy was taken. The prescription, which includes necessary drugs and supplements, is 132 pages in total. Let’s start with the beginning of the line:
- Money Politics: must tighten
- Inflation expectation: It must be reined in, otherwise poverty will be inevitable.
- Growth: Above expected. (Reason: Strong export)
- Epidemic: Especially in the second 6 months, it showed a similar performance to European countries. Accelerating vaccination demonstrated its importance. (Adult population share with at least two vaccinations is over 84%. Equivalent share for the entire population is 62%/January 2022)
Turkey’s share in global exports exceeded 1 percent for the first time in the second quarter of 2021
“Exports reached record levels in 2021, supported by the shift in demand to Turkey due to lively foreign demand, increased price competition and rising transportation costs (Figure 1). The current account deficit, which was 32.1 billion dollars a year ago, decreased to 10.8 billion dollars in January-November 2021. “
“As the depreciation of the lira and the lifting of travel restrictions led to a stronger recovery in foreign visitor numbers than Turkey’s European competitors, transportation revenues, like tourism revenues, also benefited by supporting the services trade balance.”
Export growth of 27% in 2021 was driven by exports to the USA, Germany, Italy and the United Arab Emirates. According to the report “ABis Turkey’s most important trading partner and has made the largest contribution to export changes in 2020-21.. (Shape 2nd). The average contribution of the Middle East and North Africa, Turkey’s second largest export partner, to total export growth is around 10% in the March-July 2021 period.
“It rose from -3.5 percent in 2020 to -3.0 percent of GDP as of the third quarter of 2021. The improvement in the financial balances was primarily due to strong domestic demand as well as higher tax collections, and the depreciation of the lira caused an increase in VAT in international trade. However, the fiscal deficit widened in the last quarter of 2021 compared to the first three quarters due to large transfers to SOEs, other transfers and interest expenses.”
Figure 3- Public debt relative to GDP:
January 2019- 29.9%
2021 November- 42.2%
“Turkey is also vulnerable to tightening global liquidity conditions due to its high external financing requirements as well as its over-reliance on financial flows rather than long-term financing, such as foreign direct investment, which is low compared to peer countries. Turkey has room financially, but rising inflation and recent financial turmoil could pose problems in the short term. (Figure 4)
Figure 4: Public debt is highly sensitive to exchange rate depreciation. Debt is increasing relative to GDP.
Following the policy rate cut decisions, broad monetary base expansion came to 52% in November 2021. Turkey stands out among developing countries and many other advanced economies with its high money growth and high inflation in 2021
Figure 6- (March-2021 December) The only country among peer countries that reduced interest rates: Turkey,
Figure 7- We have the most worthless money among our peers
Let’s not forget inflation
The World Bank also stated in its report that the inflation record of the last 20 years was broken. On March 3, while I was writing these lines, my eyes fell on my phone with the Bloomberg notification. A new record was broken with 54.4% annual CPI. One more bonus: real interest rate exceeded -40%.
Poverty and Unemployment
I share with you the statement of DB Turkey Country Director Auguste Kouame about this report: “We are going through a difficult period for the Turkish economy and households. Successful efforts to contain inflation and refocus on structural policies are necessary if the economy is to re-establish its ability to mobilize savings, stimulate investment, and achieve inclusive and poverty-reducing growth over the long term.
“Compared to a year ago, employment has increased by more than 3 million since November 2021. Services sector employment, which was worst hit at the beginning of the epidemic, recovered the most.”
One of the most important sentences in the report is: “The recovery in the labor market was weaker among informal workers and stronger among young and female workers.”
Yes, our number of unemployed has decreased, but can these people make a living? A teacher who teaches English at a good private school in Ankara started to receive a salary below the minimum wage with the last minimum wage regulation. For those who say it’s not enough:
“Turkey has the highest minimum wage population in Europe”
If most of the people in a country receive the minimum wage, we cannot talk about welfare there.
Figure 9- The backbone of Turkey’s poverty index has surpassed Argentina. Below you can see the graphic prepared by Ali Hakan Kara from Turkstat.
Another issue that is not included in the report, but confirms that we are getting poorer every second, is the minimum wage, which is melting away with current inflation. In the 55.4% inflation figure announced on March 3, the peak was transportation (75.75%), household goods (64.83%) and food + non-alcoholic beverages (64.47%). The minimum wage, which was increased by 51.5 percent in January 2022, melted in less than 2 months.
“The epidemic also negatively affected the fight against poverty. It is estimated that the pandemic, albeit small, pushed 1.6 billion more people below the $5.50 poverty line in 2020, and Turkey’s poverty rate increased from 10.2% in 2019 to 12.2%.
Poverty and cheap women’s labor in 7 regions
Half of the poor in Turkey were in the eastern regions. But the epidemic has exacerbated existing income and labor inequalities. In addition; manifested with greater repercussions for women in the eastern regions. It thus widened the pre-existing gender gaps even further. In particular, skilled women’s labor suffered greatly.
Leading eastern region out of registration
The Eastern region is the region with the highest informality rate of 60%. The chart below illustrates how deeply the economic turmoil in 2018-19 affected the country’s less developed regions in poverty. Inflation is also expected to increase poverty, which poses a risk to progress in this area. Some of these risks have been mitigated by a recent increase in minimum wages and minimum pensions. (Fig. 10)
On the production side, the service sector is expected to increase its contribution to growth in 2022-23. The report predicts that the services sector will account for around two-thirds of growth in 2022, following the strong recovery in the tourism sector. We’ll see if the Russia-Ukraine tension will interrupt this figure.
Climate and Turkey
In our country, where even olive trees are in need of justice, there is no one who thinks that we still give the necessary importance to nature. DB continues its warnings from this point of view. Extreme weather events have increased tremendously in the last 20 years. While there were 180 extreme weather events in 1972, there were 900 in 2020. Climate-related disasters and extreme events also pose risks to agriculture and water resources.
The expectation of making progress in anticipating the effects of the EU’s Border Carbon Regulation Mechanism and making preparations in this direction continues. [Sınırda karbon düzenlemesi mekanizması; kısaca AB’de uygulanan iklim değişikliği politikaları ile karşılaştırılabilir düzenlemeleri hayata geçirmemiş AB dışı ülkelerden (örnek: biz) gelen bazı mallara uygulanması planlanan karbon fiyatlandırması. -TÜSİAD] Otherwise, trade with our biggest trading partner, the EU, may be at risk. “The climate issue, which will affect even our exports, should be given immediate importance.” If I say it, I will attract the attention of liberals. Say what?
While doing the economic check-up of 2021 with the World Bank, we should pay attention to some realities of our country. According to the report, the most important gain is the improvement of the current account balance. Seeing this, some of the authorities shout that we will have a current account surplus in 2022. Let me wake you up, we are inside $24.8 billion in the first two months. Another issue is the decrease in unemployment. What would happen if there was a full-capacity workforce participation after the new year’s minimum wage hike melted in 1.5 months? Even cucumbers, more than half of which are water, have increased by over 100% a year, almost becoming a luxury. I’m not even counting the cheddar cheeses that are already sold by the slice. TURKSTAT says 54.4% inflation, ENAG 123%. So I ask you: Who should one trust, the one who writes or the one who lives?
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