President Recep Tayyip Erdoğan is forcing the central bank to cut interest rates to steamroll economic growth ahead of elections in 2023. But the president’s push for economic expansion through lower borrowing costs and more credit – a policy that has worked in the past – may be backfiring. Imbalances in the economy are growing, threatening to undo him at the ballot box, Bloomberg reported on Monday, citing economists. The Turkish lira has slumped against the dollar this year, making it the worst performer in emerging markets, while inflation has accelerated to almost 20 percent after the central bank started cutting interest rates sharply in September. Governor Şahap Kavcıoğlu has signalled that more cuts will come at a time when other emerging markets are hiking borrowing costs to protect their economies against global inflation. Property tycoons and exporters are benefitting from lower interest rates and the weaker lira, no more so in Istanbul, where a property boom is in full swing. But soaring food inflation and rents are squeezing the country’s lower classes, Erdoğan’s traditional voter base, Bloomberg said. Hacer Foggo, founder of the Deep Poverty Network, said an increasing number of householders are unable to meet basic needs such as food and rents. “I’ve been working in the field for the last 20 years and for the first time I am seeing poverty turning into hunger and people asking for food,” Foggo told Bloomberg. Turkey’s lowest wage earners have seen their share of GDP fall by 0.3 percentage points to 5.9 percent in 2020, while the highest earners increased their share by 1.2 percentage points to 47.5 percent, Bloomberg reported, citing official data. “Credit-boom driven growth is problematic. It’s overheating the economy, fuelling inflation, pressuring the currency and failing to attract high-quality resources that are required to improve welfare,” said Güldem Atabay, an economist at Global Source Partners in Istanbul. “Deterioration in income distribution and bad governance will have a political cost.”
Ahval