In this guide to Turkey’s National Debt, we discuss the amount of the debt, who manages it, and why the country is struggling financially.
The National Debt of Turkey
Turkey’s gross national debt includes all of the debt instruments issued by the government of Turkey. In 2020, the total national debt of Turkey amounted to a debt-to-GDP ratio of 41.7%.
When assets of the Central Bank of Turkey and other publicly held funds are deducted, the net national debt of Turkey is 35.2% of GDP.
This is a very healthy figure, which should show that the country has a strong economy. However, the currency of Turkey keeps falling and there has been a developing financial crisis in the country.
Who Manages Turkey’s Debt?
All of Turkey’s national debt is guaranteed by the country’s government. The bonds that the government issues all bear the name “Republic of Turkey.”
As a result, there is not one specific institution that is legally obliged to repay those bonds, but all of the combined branches and agencies of the government are mutually responsible for the debt.
General Directorate of Public Finance
The government’s Ministry of Treasury and Finance is tasked with managing the country’s economy and a division of the Ministry, called the General Directorate of Public Finance has the responsibility of raising funds for the government. That remit includes the issuing of bonds and the management of the national debt.
Turkish Government Securities
The world’s investor community is worried about the quality of Turkish bonds as a safe place to store money. The key problem that Turkey faces is the sliding value of its currency and the government’s low foreign currency reserves.
Bonds in Multiple Currencies
Not all of Turkey’s national debt is valued in the country’s currency, the Turkish Lira (TRY). Those who want to buy Turkish government bonds could avoid the problem of the falling Lira by buying bonds that are denominated in other currencies.
| Bond Currency | No of Outstanding Issues | Value in TRY |
|---|---|---|
| TRY | 62 | 576,051,992,432 |
| USD | 27 | 55,250,000,000 |
| EUR | 5 | 6,500,000,000 |
| JPY | 3 | 370,000,000,000 |
| Total Value in TRY | 1,007,801,992,432 |
Risks of Issuing Bonds in Non-Turkish Currencies
This range of currency options is great for investors, but a problem for the Turkish government when the lira’s value falls. Interest on these bonds must be paid back in the currencies that the bonds were written in.
Since almost half of the country’s debt is written in other currencies, the cost of interest will remove a larger portion of the government’s budget, reducing the money available for social support and public investment.
Why Is Turkey in Trouble?
The 2018 financial crisis in Turkey is a good example of how factors other than national debt can harm a country’s prospects for investors. The country’s ailments are all signs of a currency crisis and not, primarily a debt crisis.
These problems are caused by:
- Domestic political instability
- International diplomatic errors
- A balance of trade deficit
- An economy reliant on one sector (construction) for growth
- Low foreign currency reserves
- Over-dependence on foreign currency loans in the private sector
Construction Industry Is Struggling
The construction industry was able to source financing while the Turkish Lira was stable, or rising. However, the falling Lira has put pressure on the industry, which analysts believe could destroy the entire Turkish economy.
Large construction projects take years to complete and the changing financial landscape while a skyscraper is still under construction can ruin the developer and its backers.
Banking Concerns
If foreign banks that lent to businesses in Turkey panic and pull their loans, they will have difficulty getting their money back. Many Turkish banks also owe money to overseas lenders.
The total external debt of Turkey (loans owed in foreign currencies) was $466.7 billion at the end of Q1 2018. The nation’s total foreign currency reserves amount to $114.5 billion. Of this figure, only $87.9 billion is held in cash.
What Could Cause Turkey to Collapse?
The series of events that could cause collapse is outlined below:
- The falling Lira makes the income collected in sales by property developers worth less in terms of foreign currencies.
- The builders are unable to repay their foreign currency loans.
- Large apartment buildings remain unfinished.
- Property buyers who paid deposits lose their investments.
- Local banks that lent to local property investors can’t recover their loans.
- Local banks can’t cover their debts or reimburse depositors.
- Depositors learn of the problems of their banks and try to withdraw their money.
- The government bank guarantee scheme has to compensate depositors.
The cycle of economic destruction in Turkey has already reached point 4 in the above scenario.
Could Turkey Go Bankrupt?
Despite the country’s very low rate of national debt as a percentage of its GDP, Turkey does have a serious problem.
High Inflation
The government can print money to meet its costs. The Central Bank of Turkey, which is owned by the government, is responsible for the money supply.
In fact, the government has already been deploying this strategy, which is the principal reason for its high inflation rate of 15.2% at the end of 2019.
Lira Devaluation
Another reason for high prices in Turkey is the fall of the Turkish Lira, which lost half of its value against the US dollar between December 2017 ($0.26) and November 2020 ($0.13), as shown in the chart below.
Bankruptcy Outlook
If foreign lenders refuse to extend or renew their loans to Turkish banks and businesses, the government and the country’s banks will need to find that amount in the right foreign currencies.
If the holders of the currencies that Turkey needs are unwilling to exchange their hard currency for printed Lira, the country will be unable to meet its obligations and thus fall bankrupt.
More Facts About Turkey’s National Debt
- You could wrap $1 bills around the Earth 1,356 times with the debt amount.
- If you lay $1 bills on top of each other they would make a pile 38,039 km, or 23,637 miles high.
- That's equivalent to 0.10 trips to the Moon.
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Further Reading
- Turkey’s Biggest Import and Exports
- Real-Time World Debt Clock
- Learn to Trade Commodities
- Stock Broker Reviews
- Learn to Trade CFDs and Find a Broker
