Turkish President Tayyip Erdogan has said that the country’s inflation rate has fallen to a 23-year low, while he also emphasized that the government is working on ways to combat rising prices. Turkish consumer prices have risen over the past year, fuelled by the tumbling lira, soaring energy costs, and war in Ukraine.
Turkey’s economy grew at 3% last year, less than 1% in 2019 and a paltry 1.8% in pandemic-hit 2020. Erdogan was determined to boost growth and win public support. He believed that borrowing costs must drop to stimulate growth. However, this plan cost him his post in March 2021, and his son-in-law, Elvan, will take his place as finance minister later in 2022.
The economic growth in Turkey in 2021 was fueled by a pent-up demand and stockpiling trend, and the government is aiming to sustain growth through the election. In July, the government is expected to raise the minimum wage and pensions, which will further frustrate the electorate. The government’s fiscal liability has risen over Erdogan’s executive presidency. The country’s domestic debt stock has climbed to $86.4 billion, and its external debt has reached $441 billion.
Turkish currency has weakened by 40% since the COVID-19 pandemic and the Russia-Ukraine conflict worsened Turkey’s economic woes. The currency has lost 20% of its value against the dollar in six months. Erdogan’s policy of lowering the policy rate has only added to the burden of the Treasury and spawned fresh economic risks.
Turkey’s President Recep Tayyip has pushed for low interest rates as a way to ease the burden of rising inflation. Yet, economists have predicted a high inflation rate in the country through the year 2022. Therefore, Turkey’s economy must be viewed with caution. If Erdogan’s policy doesn’t change, there will be a drastic drop in foreign investments.