Turkey & the Real Risk of a Debt Crisis

The Treasury and Finance Ministry of Turkey announced that the country’s net external debt stock totaled $286.2 billion going into the end of the 3rd quarter of 2018. The country’s net external debt stock to its gross domestic product (GDP) ratio was 34.4% at the end of the third quarter of 2018. However, Turkey’s gross external debt stock amounted to $448.4 billion at the end of the 3rd quarter, bringing the debt/GDP ratio to 53.8% according to the official figures.

Interestingly, because of the fear of the Turkish lira, Turkish corporations have been often compelled to borrow in dollars. Therefore, the private sector’s share in the country’s gross external debt stock was 68.2% ($305.9 billion), while some $215.9 billion of this amount consisted of long-term debts with a maturity of more than one year. The Turkish public sector’s share of this debt was 30.6% in the country’s total foreign debt, which is about $21.4 billion in short-term (under one year) with $115.7 billion in the long-term (over one year). The banking sector’s (lenders and the central bank) external debt stock was $176.99 billion at the end of the 3rd quarter.

When we break this down further, 58.5% of the total gross external debt is denominated in U.S. dollars with only 32.3% denominated in euros. The amount denominated in Turkish lira among the external debt stock was a trifling 5.9%. This illustrates the crisis that will emerge with a change in the currency values.