Turkey on the verge of devastating economic recession

It's no secret that over the years, Turkish President Recep Tayyip Erdogan has made a political fortune back home by starting crises with Muslim and non-Muslim states. This is how he has succeeded in distracting the Turkish public from the burning domestic issues of the day.

Erdogan knows all too well that public support for him today is at an unprecedented low: For the first time, he and his nationalist allies are not leading the "anyone but Erdogan" alliance in the polls.

The main reason for this shift is the lira's depreciation against the dollar. It had pared losses and one dollar was worth 9.88 Turkish lira, posing as the worst performer in emerging markets again.

Last month Turkey made it into the grey list of the Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog headquartered in Paris. The FATF listing for Ankara comes on the back of a shaking economy being jolted by the Covid-19 pandemic.

As of last year, the Erdogan government’s financial mismanagement had already prompted the biggest funds outflows from Turkey’s debt and equity markets in more than a decade.

Erdogan's policy has also dried up foreign direct investment (FDI) from Ankara’s traditional economic partners in the West. As he has wielded dictatorial control over Turkey’s finances for almost two decades, Turkey’s inclusion in the grey list of FATF is deeply embarrassing.

The Turkish economy over the years has faced severe challenges led by economic overheating, a currency crisis, shaky morale of foreign investors, and lack of transparency and autonomy. Amid high inflation, widespread youth unemployment, and deepening poverty, the country’s economic situation is looking increasingly grim.

On the other hand, the continuous fall of the Turkish lira is also fueling the current economic crisis. The lira has lost 20% of its value against the US dollar since the start of this year. Even some experts believe that the country is on the verge of a potentially devastating recession.