Here is why: In mid-March, risk perception at the markets deteriorated and credit lines came to the brink of collapse under the economic impact of the COVID-19 pandemic. The argument standing out in Turkey is that the country’s central bank has grown more fragile in meeting its liabilities, with more than 60% of its reserves relying on currency swap deals, that is, a “peg leg.”. The report predicted that advanced economies -- especially those experiencing widespread outbreaks and deploying containment measures -- will contract this year, including the U.S. (minus 5.9%), Japan (minus 5.2%), U.K. (minus 6.5%), Germany (minus 7%), France (minus 7.2%), Italy (minus 9.1%) and Spain (minus 8%). How to Contact the IMF Address Headquarters 1 (HQ1) International Monetary Fund 700 19th Street, N.W. The report called on countries urgently to work together to slow the spread of the virus and develop a vaccine and therapies to counter the disease. All countries in this group face a health crisis, severe external demand shock, dramatic tightening in global financial conditions and a plunge in commodity prices, it underlined. The report also highlighted the importance of effective policies to forestall worse outcomes. Growth was forecasted to recover next year under the assumption that the pandemic subsides in the second half of 2020 and containment efforts are gradually unwound. The US dollar stockpiles of countries have taken on a new importance amid the global economic turmoil caused by the COVID-19 pandemic. The late Rudi Dornbusch, the renowned MIT … Turkey’s central bank provides no data on reserve adequacy, but releases monthly figures on gross reserves in line with IMF standards. The IMF uses a more complicated formula to calculate the reserve adequacy of central banks. The facility was soon extended to Australia, New Zealand, Singapore, Denmark, Norway, Sweden, South Korea, Mexico and Brazil. You’re now subscribed to Al-Monitor. provides additional information on the economic forecast during the pandemic. This swap-reliant, “peg-legged” outlook of the central bank involved $55 billion in swap liabilities and $33 billion in net international reserves in May. According to central bank data, Turkey has $164.6 billion in debts that will mature within a year. The IMF won’t be sufficient to meet Turkey’s foreign financing needs, even if the government were to request assistance: Ali Babacan, Former finance minister Updated 09 August 2020 … Turkey has large external financing needs, and its private sector is heavily indebted in foreign currency, raising risks to financial stability in 2020-21. Pointing to the extreme uncertainty surrounding the global growth forecast, the report underlined that many countries faced a multi-layered crisis comprising of health shocks, domestic economic disruptions, plummeting external demand, capital flow reversals and a collapse in commodity prices. Meanwhile, the central bank is estimated to have used about $70 billion in reserves to prop up the embattled lira in the past 15 months, employing indirect, non-transparent methods via public banks. While the results of those operations have been lackluster, the international media has often sounded alarm over the central bank’s plunging net reserves. We expect real GDP to contract by 4.9% this year. Plus get access to seven years of our archives. "It is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago," stressed the report. In its latest World Economic Outlook -- released before the annual conference of the IMF and World Bank on Wednesday, the fund downgraded its growth forecast by 6.3 percentage points from its previous report as isolation, lockdowns and widespread closures to contain the virus hit the economy. The reasons for Turkey’s exclusion are not hard to discern. In China, indicators such as industrial production, retail sales and fixed asset investment suggest that the contraction in economic activity in the first quarter could have been about 8% year-on-year, the report said. All rights reserved. Turkey has clinched swap deals with China and Qatar and the sum obtained through those deals has been announced as $16 billion. In terms of the ratio of external financing requirements, including the current account balance and debts maturing within a year, to gross domestic product, Turkey is again among the most fragile countries, along with Poland and Malaysia. © 2020 Al-Monitor, LLC. Al-Monitor Staff | Coronavirus | Oct 2, 2020, Al-Monitor Staff | Coronavirus | Sep 28, 2020, Amberin Zaman | Turkish-Kurdish conflict | Sep 25, 2020, Diego Cupolo | Social Media | Oct 6, 2020, Mehmet Cetingulec | Armed Militias and Extremist Groups | Oct 5, 2020. Turkey’s central bank appears increasingly fragile, with more than 60% of its reserves secured through swap deals. Turkey finished repaying $23.5 billion of debts to the IMF in 2013 and now the central bank has increased its reserves of foreign currency to about $90 billion from $27.5 billion, Erdoğan said in a speech at a dinner in Istanbul late The country’s current account deficit reached $12 billion in the first four months of the year and is likely to hit $30 billion by the year-end. Now available online. The June 2020 WEO Update provides additional information on the economic forecast during the pandemic. All rights reserved. The link to reset the password will be sent to your email address. The Eurozone's growth forecast was also reduced to minus 7.5% for 2020, while the economy in the bloc is expected to expand by 1.4% next year. The June 2020 WEO Update provides additional information on the economic forecast during the pandemic. The US dollar liquidity in global markets became extremely scarce, leading the Fed to offer swap facilities to the central banks of the eurozone, England, Japan, Switzerland and Canada, all key actors in global money flows. The bank notes that “outstanding FX and gold liabilities arising from [the central bank’s] financial derivative activities with resident and non-resident banks recorded $55.3 billion, of which $20.1 billion is due in one month.” This is an important detail as it pertains to sums obtained through currency swaps with foreign central banks and local banking actors.