On 12 February, ratings agency Fitch lowered Turkey’s sovereign bond ratings deeper into junk status, dropping them from BB- to B+, putting the G20 nation on the same credit footing as Benin and Rwanda.
The lower rating will increase Turkey’s borrowing cost, an especially painful consequence because Turkey depends on foreign lending to keep its economy afloat.
Fitch also issued a negative outlook for Turkey’s bonds, meaning they could be downgraded even more.
The country’s official inflation rate stood at 21.31 percent last month, although private groups have pegged it as high as 48.7 percent, as we reported in “Turkey: A Crime to Tell the Economic Truth?” (5 Oct 2021). 
Many citizens have all but abandoned the lira, Turkey’s currency, and instead are doing business in dollars and even Bitcoin. (“Turks Dump Lira to Buy Crypto,” 18 Jan 2022.)
Fitch also said in its statement announcing the downgrade that Turkey’s plan to revive its currency through bank-account savings plans that make up deposits’ losses due to inflation will not “sustainably ease macroeconomic and financial stability risks.”
We noted Turkey’s novel, if desperate, savings plan in “Turkey’s Markets Crash, Currency Crisis” (21 Dec 2021) and “Turkish Lira Pauses Its Decline; Erdogan Fires Statistics Chief” (1 Feb 2022).
The lira, Turkey’s currency, lost about 44 percent of its value against the dollar in 2021. The savings scheme slowed the lira’s fall but has not definitively halted it.
Turkey’s fiscal distress is due to president Recep Erdogan’s long-standing insistence that low interest rates cure inflation, a notion that defies both basic economic theory and Turkey’s economic experience.
Erdogan fired three governors of the central bank in a matter of months when they failed to hew to his insistence on a series of interest rate cuts. The sackings were followed by flights of foreign investment and the lira’s accelerated slide.
We documented these episodes in “Turkey’s Financial Markets Crash After Agbal Firing” (30 Mar 2021) and “Turkey: Another Day, Another Central Bankster Fired” (1 Jun 2021).
The rate cuts have brought the central bank’s main rate to 14 percent, giving lira-denominated investments a real return of about -35 percent, according to the Financial Times.
Turkey’s current monetary policies “could entrench inflation at high levels [and] increase the exposure of public finances to exchange-rate depreciation,” exhaust public confidence in the lira, and force the country to continue to drain its foreign currency reserves to buy lira to shore up its value, Fitch warned.
Erdogan maintains that he is pioneering a “new economic model” and that the weak lira will boost Turkey’s exports and encourage employment.
About 11.2 percent of the country’s workforce was jobless at the end of 2021.
TREND FORECAST: As we noted in “Turkey: The Famous Lira Dive” (23 Nov 2021), the country’s crashing currency and soaring inflation continue to roil an increasingly chaotic and unstable Turkish socioeconomic and geopolitical environment. Foreign investors are pulling their cash out before Turkey’s economy crumbles completely.
As the global economic recovery decelerates—and as inflation keeps rising across the globe—the lira and Turkey’s economy will continue to decline. Ongoing COVID outbreaks will worsen Turkey’s plight; nearly 13 percent of its GDP rests on travel and tourism.
Erdogan’s domestic popularity recently fell to a two-year low and will continue to sink with citizens’ economic prospects.
For that reason, look for Erdogan to become more belligerent in his comments and actions directed at foreign “enemies.” As Gerald Celente often says, “When all else fails, they take you to war.”

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