The post-earthquake needs analysis


The financing needed to raise the quake-hit region, and meet the necessary support to those, who lost their homes and jobs, is estimated at around USD 150bn, according to a report by the Economic Policy Research Foundation of Turkey (TEPAV). USD 88bn stems from construction expenditures. One of the determinants of this amount is the unit construction costs set in the tenders held nearby in the quake-hit region. Considering construction activities, the report estimates five years to physically return the region to the pre-earthquake era. Turkey’s construction capacity is considered before this timing was set.

Some experts say buildings can be constructed at a lower cost. Let’s assume that the unit costs will be 30% lower. Yet there is a high financing need: USD 124bn. This accounts for 13.7% of the 2022 GDP. Nearly 60% of the total financing is needed for expenditures for the first two years, according to the report. Considering the first three years, the figure reaches 80%. Shortly, there is a financing need corresponding to 11% of the 2022 GDP for the first three years. Even if the public sector undertakes an amount up to 10-11% of the GDP, this may not increase risks in the economy on condition to return to a modest economy.

The primary reason is that the public debt-to-GDP ratio is too low. It has hovered around 27% as of the end of 2022. Of course, the Treasury has conditional guarantees, and capital transfer can be needed for public banks due to interest rate hikes in the future. These can raise the debt ratio. Yet, it will still be low if these don’t reach extreme values. That’s why an 11-point hike in the debt ratio dispersed over a few years won’t create an important problem. These calculations will be valid if the public sector shoulders all the burden.

But why should the public sector provide all financing needed with domestic borrowing? Firstly, it can work to increase tax revenues. Some tax regulations have already been made. Secondly, cheap resources can be used from international organizations such as grants and low-interest rate loans. Authorities have an important responsibility at this point. International institutions expect and demand a comprehensive needs analysis, which must include the details of the needs which must be met without a delay to the needs need to normalize life. It covers the fields such as potable water and sewage, residences-offices, infrastructure, health, education, etc. How many years will this process take? Experts from many different specialties must urgently do a detailed study. If they have already done it, then they must be quick, and the analysis must be at the level to convince institutions that will provide such grants and loans. In this case, if USD 25-30bn support is found, it will be possible to provide around 25% of the financing below the market conditions.

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