Turkey is on shaky ground and its currency depreciating as controversial monetary moves and fast-rising coronavirus cases threaten to plunge an already fragile economy into much more danger.
The country of 82 million is one of the few in Europe that hasn't implemented a mandatory nationwide lockdown, something its president Recep Tayyip Erdogan has so far avoided in hopes of shielding the economy. But after nearly two years of a weakening currency, high debt, dwindling foreign reserves and growing unemployment, Turkey is in a particularly bad place to weather a pandemic, experts say.
"There will be hard times ahead, because Turkey was already at a macroeconomically vulnerable position before the coronavirus hit," Can Selcuki, managing director of Istanbul Economics Research, told CNBC on Monday, following a temporary 48-hour lockdown of Istanbul and 30 other cities. While self-isolation is currently voluntary in Turkey, he said, most non-essential businesses had closed and tourism had evaporated.
"Unemployment in January was already 14% and it will probably increase greatly due to the foreclosures because of the coronavirus," he said.
Turkey began registering more than 3,000 new coronavirus cases per day after April 4 and has reported more than 4,000 per day since April 8, a sudden surge that's alarmed health experts. The country confirmed its first case on March 11 after insisting it had no cases for more than two months as the virus spread in its neighboring countries.
Cases are now at more than 65,000 — the ninth-highest globally, after Iran — with at least 1,400 deaths.
Erdogan claims his government has dealt with the virus better than any other country. But concerned calls from medical associations in Turkey demanding government transparency and support in the fight against coronavirus have grown louder as the spike in cases draws warnings it could become the next Italy or Spain.
"It is evident that hospitals in the city have not prepared adequately in the two and a half months since this deadly virus first came into the spotlight," the Istanbul Chamber of Physicians said in a statement in early April.
Erdogan on Monday announced tens of billions of lira worth of funding for businesses hit by the virus, as well as unemployment support and large-scale postponement of debt and mortgage payments. New hospitals are being built in Istanbul and on airport grounds, and nearly half a million tests had been carried out, he said.
A new weekend curfew will take place beginning April 17 and may continue for successive weekends, the president said, after the abrupt announcement of last weekend's 48-hour lockdown on Friday sent hundreds of thousands of people rushing into crowded grocery stores, flouting social distancing guidelines.
Recent moves by Erdogan's administration have spooked investors — Turkey on Monday restricted foreigners' ability to trade the lira in the offshore swaps market, sending the currency falling the furthest among emerging markets for the day.
And analysts expect the lira to fall yet further in value. Already hit by the country's currency crisis in 2018 and 2019, this year has seen the dollar gain 13% on the Turkish note, which was trading at 6.796 to the greenback on Tuesday afternoon Istanbul time compared to 5.946 at the start of the year. Japanese bank MUFG forecasts the lira falling to 7 per dollar by the end of the quarter.
Gross foreign currency reserves have fallen rapidly in recent months to their lowest level since 2009 largely due to Turkey's Central Bank, the CBRT, selling dollars to artificially prop up the lira. Turkey's foreign reserves, excluding gold, amounted to $77.4 billion at the end of February, according to the IMF; its financing requirements for 2020, by contrast, are estimated at $170 billion.
"If any country experiences a sovereign debt crisis, there are risks that there might be a contagion effect to emerging markets," Agathe Demarais, global forecasting director at the Economist Intelligence Unit, told CNBC. "That Turkey has large external financing needs, and a private sector that is highly indebted in foreign currency, compounds these risks."
The EIU expects a full-year recession in Turkey, whose "large tourism sector will collapse, which will fuel pressure on the twin deficits and on the already fragile lira" which will in turn fuel inflation, Demarais warned.
The lira also fell after Erdogan loudly refuted any acceptance of support from the IMF, which economists say the country direly needs.
"Turkey doesn't have the types of resources it did 10 years ago to compensate for the economic collapse of the coronavirus," Selcuki said. "Turkey is going to need any kind of resources it can get its hands on."
The rejection of the IMF is political for Erdogan, many analysts say, but they describe it as economically unsound.
"Idiotic to rule out cooperation with the IMF when the CBRT is bleeding scarce FX reserves," Timothy Ash, senior emerging markets strategist at Bluebay Asset Management, said in an emailed note. Erdogan said Monday in an address to the nation that Turkey "will not bow down to the IMF program, or any imposition that would indebt our country."
Demarais described Erdogan's move as "a bravado meant to help the country save face, but foreign investors will not be impressed."
Options like a credit line from the U.S. Federal Reserve are uncertain and capital controls would be disastrous, the analysts agreed. Without external help, and with looming mass unemployment, high financing needs and a health crisis, Turkey may be quickly running out of options.
"Given the current pace of CBRT reserve depletion, time is fast running out for the CBRT, the lira and Erdogan in terms of economic policy choices," Ash said.