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Economist Prof. Dr. Korkut Boratav: ‘Foreign debt sinks Turkey’

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The AKP government, which has not been able to create new resources in the economy for a long time, started to borrow rapidly.

According to the latest information announced by the Ministry of Treasury and Finance, the total of the Treasury’s domestic and foreign debt (principal) has increased to 3.1 trillion liras. The interest burden, which will be paid until the maturity of the debt, increased by 304 billion liras in a month and reached 2.7 trillion liras. 1.5 trillion pounds of the principal of this debt is domestic debt. The total interest burden here is 2.1 trillion liras. In the last month, the interest burden of domestic debts, 28.6 percent of which is in foreign currency and a valuable part of which is indexed to inflation, has increased by 309 billion liras in the last month due to the increase in the exchange rate, the rise in inflation and the increasing interest rates. For the first time in March this year, the interest burden of the domestic debt stock exceeded the debt principal price. The gap continued to widen in April as well.


Foreign debts constitute 1.6 trillion liras of the debt stock. The interest burden of foreign debts reaches 662 billion liras with the exchange rate of the end of April 2022. Foreign and domestic debt in foreign currency accounts for 65.6 percent of the external debt stock. Currency and floating rate debts hold 76.1 percent of the stock. Increases in exchange rates and interest rates also increase the burden of the Treasury.

Economist Prof. Dr. Korkut Boratav pointed out that no economy will fail from domestic debts and drew attention to the following points: “The critical problem here is foreign debts. It is bankrupt from foreign debts. The word bankruptcy comes from there. A possible bankruptcy scenario relates to external debt. It also has criteria. Domestic debt is paid by printing the worst money. The Central Bank does not have a limit to print money. You risk the consequences, you pay. How you pay, inflation lowers the value of debts. You reduce the value of the papers and relax. You tax, you get wealth tax, if you have to, it’s okay. Conversion of debts in TL is not a problem. External debts are critical. These debts are the main source of bankruptcy.” Pointing out that the most valuable element of Turkey’s foreign debt is short-term debt, Boratav said that this number has increased and should be observed.


Boratav drew attention to the fact that foreign currency borrowing started in the domestic market, which he described as a “bad factor” and continued as follows: “This is a new practice. The issuance of foreign currency bonds means the de facto confiscation of the foreign exchange resources of the domestic savers of the Turkish economy. Tomorrow and the next day, it can be said that these are papers and treated as a domestic debt.”


Economist Prof. Dr. Aziz Konukman reminded that the CDS, which is briefly described as the “country risk premium”, exceeded 700 points for Turkey. Pointing out that as the risk premium increases, it becomes more difficult to borrow from abroad, Konukman said, “The fact that the risk has increased so much is a signal. It is the red line. “The cost of borrowing is increasing horribly,” he said. Indicating that the cost of currency-protected deposits is increasing gradually, Konukman also drew attention to the accrual-collection ratios related to the budget. Pointing out that this rate is 45.6 percent with the prestige of April 2022, Konukman continued: “57.8 percent in tax income and 53.4 percent in income tax. There is a collection of 25.1% in the income tax based on declaration and 7.3% in the income tax in the easy method. So taxes cannot be collected.” According to Konukman, if the tax is not sufficient, domestic borrowing accelerates both in TL and foreign currency.

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