Introduction

As Turkey’s economy has been undergoing an instable phase, its future has become unpredictable. Since the past six years, Turkey’s economy has been facing significant challenges and inflation is on top of those challenges. The inflation movement has notably affected economic stability of the country as well as it has largely affected individual lives and businesses. However, despite the stable period between 2003-2018 in which Turkey was on its top of economic stability, the country had been having struggles with high inflation even before.

From 2018 until today, Turkey has been experiencing an economic crisis characterized by devaluation of Turkish Lira, high inflation rates, and increase in the costs of government borrowing. These economic factors collectively have led to tough challenges for the economic path of Turkey. In addition, these challenges have open on to concerns about the financial future of the country and its people. 

Background

During the last two decades, Turkey marked remarkable developments in its economic sphere. During that times, substantial increase in employment and income level rates were noteably experienced. As a result, the period led to a boost in demand for variety of products and services within the market. Therefore, Turkey became a prominent industrial player in the world in different major sectors of industry including agriculture, textile, construction materials, and many other industries. Consequently, the advancements made Turkey’s economy to become an industrialized country with diverse folder of economic sources. 

Stemming from a high GDP rate, Turkey witnessed a rapid economic growth during 2003-2018 period, resulting to an increase in the consumption of goods and services as well as expenditures. The boost in high demand, naturally lead to increase in prices among various sectors. This action along with the devaluation of Turkish lira have sharply contributed to the inflation rate increase and create a pressure on the overall economic performance of Turkey. 

Further challenges have been resulted from the volatile exchange rate impacting imports, thus, increasing overall consumer costs. Import prices are counted as the primary factor causing the inflation rate. This is because a significant part of production and manufacturing goods in Turkey relies on imported raw materials, intermediate goods, and machinery equipment. Therefore, the acquiring of imported goods has become more expensive than before due to the high exchange rate of Turkish lira against foreign currencies in which the payment for those goods are being done through. As a result, production costs have increased thus leading to high inflation rates.

Even though the authorities and policymakers of Turkey have tried to make actions for stabilizing the inflation rates, the action of high production costs and the depreciation of Turkish lira, naturally require a need for rise in interest rates. Therefore, the inflation continues and consumer costs in turn increases. 

Government Policies and International Effects

The current account value of Turkey has been decreasing due to high import rate and low export rate resulting from the process of industrialization. Import acquisition which usually conducted in foreign currencies discredited the value of Turkey’s national currency in which intensifying the inflation rates. In addition, the high inflation rates along with decreasing value of Turkish lira have further worsen loan defaults, affecting both government and gross external debts. 

An obvious factor is the low saving policy by the Turkish government in which the government have difficulties paying back debts and increase public spending. In addition, relying on leading to private sectors in which often conducted through foreign currencies, is also another primary factor in the process of economic inflation. Collectively, these factors have created an economic shock for the government and Turkish lira fluctuation trend.

An attempt by the Turkish government to control the inflation rates were limiting investment policies in the recent years in which it has affected the financial flows and employment and purchasing power. In addition, the Turkey’s role as being a major distributor of fuel to the Western countries, international attentions on turkey have further increased. However, the US tariffs implication on Turkish products along with Russia-Ukraine war have significantly compounding economic challenges for Turkey.

Analysis

The latest economic challenges of Turkey can be connected to a course of countering actions of the international countries, specifically by the United States. The goal of positioning Turkey as an international hub for industrialization, has to led to worries by the international community. This concern is originated from the possibilities that Turkey becoming a source of strong economic power in the region. Thus, the implementation of demand inflation policies, in which reducing production costs and lower labor salaries are aimed, resembles the economic policies of countries like China. 

However, Turkey’s economic desires have been always affected by geopolitical instabilities in the region. The unstable situations in Syria and disagreements between Turkey and the United States on it along with ongoing Russia-Ukraine war have compounded the challenges for Turkey’s economic development. 

Since the start of the crisis, major decrease in public spending and constant increase in unemployment have been experienced by Turkey’s economy. Consequently, the purchasing power of citizens has dramatically declined, in which according to surveys, around 85% of the population are dissatisfied and worried with their economic states.

Conclusion

The economic status of Turkey has been characterized with a mass of challenges including high inflation rates and devaluation of national Turkish currency. However, despite economic stability and development over the past two decades, Turkey has been facing structural policy issues including expanding current account deficit and substantial reliance on imports. 

Nevertheless, government’s policies and actions have been challenged by multiple effects such as geopolitical conflicts including Russia-Ukraine war and tariff increase by the USA. Additionally, decrease in public spending by the government, increase in unemployment, and weakened purchasing power have developed.

Furthermore, president Erdogan’s ambitions to industrialize Turkey as a global industrial hub, have further complicated the economic challenges, resulting in conflicts between domestic economic policies and the dynamic of global world.