BY ALAATTIN AKTAS
Turkey would probably take second place after Ukraine among the countries that will suffer the most from Putin’s statements yesterday and the operation launched by the Russian army.
Russia may also suffer from the sanctions the West will impose. However, even the increase in oil prices due to this tension benefits Russia. Even if it can’t sell to the West, there is a huge Asian market.
It is the job of diplomats and foreign policy experts to examine the international dimension of the problem. We will try to look at what will happen to us, from which aspects, and to what extent Turkey will be affected by this. Because, as we said, this development, which started as a “Russia-Ukraine tension” and became a problem for almost the whole world, seems to affect us most of all third-party countries.
Tourism comes first
Turkey has become very dependent on Russia and Ukraine in terms of tourism. The latest annual data for 2021 shows that 27 out of every 100 tourists visiting Turkey are Russian or Ukrainian. The number of people who came from these two countries was 6.8 million last year.
However, this figure is far from reflecting the real potential. Let’s go back a few years; In 2019, the number of arrivals from Russia alone exceeded 7 million. That year, we hosted 1.5 million guests from Ukraine. Already, 2019 was a record year for Turkish tourism with 45 million tourists.
Therefore, the expectation was that more tourists would come from Russia and Ukraine this year, when most of the effects of the pandemic would have hopefully passed.
However, this is now in doubt as a result of these latest developments. A possible decrease in the number of Russian and Ukrainian tourists will disrupt our plans for this year, there is no escape from that. Fewer tourists mean less foreign exchange (FX) in the Turkish market. Unfortunately, Turkey has built almost all of its plans based on high tourism revenue this year.
Official tourism revenue target at USD 25bn
Tourism income was USD 19.2bn last year, according to the Central Bank’s balance of payments statistics. This year’s official revenue target is USD 25bn in the medium-term program for the 2022-2024 period. Although the official target is at this level, between USD 35bn and USD 40bn could be reached, according to the statements.
What about now? If the problem between the two countries becomes more complicated and prevents foreign travelers from coming to Turkey, we may have to settle for USD 25bn.
Oil prices to further rise
Crude oil prices, which were hovering around USD 90 per barrel for a long time, started to increase with this tension. It would not be surprising if the price of oil per barrel exceeds USD 100.
Moreover, Turkey has taken steps to increase the cost of oil for the country, out of the blue. There was already an increase in oil prices in recent months, but we twisted the knife instead of taking measures to correct this increase. When the Central Bank pushed the rate up by lowering the interest rate, we doubled the increase in the cost of crude oil, and fuel prices have doubled in the last five months.
Of course, the withdrawal of the special consumption tax (SCT) support applied last year was also effective in this rapid increase in fuel prices.
Even though the general price increase last year and the economic difficulties were much lighter than their current level, the SCT support was applied, so people are asking themselves why this support was withdrawn this year. This support should have been implemented this year, they think. But it seems the budget couldn’t allow this.
We should be ready for new price hikes
There has been no hike in gasoline and diesel fuel since February 10. Oil prices have not changed much for about two weeks and the FX rate has already been under control. For now.
Just like releasing water from dams to prevent flooding or leaving a balloon left half-inflated so that it does not burst, there is room left for a little increase in FX rates so that they do not explode. This situation may continue in the coming days.
Therefore, new increases in fuel prices may come with the increase in crude oil prices and FX rates.
Current account surplus?
The medium-term program prepared last autumn predicted the 2022 average of the USD/TRY as 9.27. This year’s average crude oil barrel price was estimated as USD 68.3. This represents a deviation of 45%.
Fortunately, the Central Bank saw that the trend was up and revised the USD 68.3 figure to USD 80.4. in the first inflation report of the year on January 27.
We are faced with an oil price that is almost USD 15 higher than even the latest estimate. The difference may soon reach USD 20.
Now let’s put the pieces together.
We predicted the oil price as USD 80.4, but it is already pushing USD 100.
We assumed USD/TRY as 9.27, but the single-digit currency rate is so far away that we almost forgot it.
What emerges when these two parts come together?
We are used to the contradiction between what is written and what is said, but it is still strange. A deficit of USD 18.6bn was foreseen in the current account this year in the medium-term program. But then the government says that there will be a current account surplus this year.
It isn’t likely to happen, but it was still a good dream.
When we look at the whole, we see a current account deficit with the potential to grow, not a current account surplus.
However, all the steps taken, such as FX-protected TRY deposits, encouraging the transition from FX deposit accounts to TRY, including companies in this practice, bringing under-mattress gold into the economy, and tax exemptions were based on holding FX at a stable level and producing a current account surplus. But the government failed to take Putin into account.