✔ The so-called “lira”, “dollarization” in the app!
✔ The share of foreign currency indexed domestic debt exceeded 30 percent for the first time.
✔ While the domestic debt principal has increased by 524 billion in the last year, this is the reason for the 1.7 trillion increase in the interest burden; both the increase in the share of foreign currency and the CPI indexed papers…
In a sense, I want to continue where I left off yesterday. In this column, I have included the projection of the principal balance of the domestic debt since the last year and 2012 and the interest payment to be made for this yesterday. There is one detail that I want to highlight right away. Some readers ask how I calculate the payment projection for interest.
I am not the one making this projection… These data belong to the Ministry of Treasury and Finance and are publicly available. It’s the Treasury that does the calculation. This projection is made by estimating how inflation will follow in the coming years and what the exchange rate will be. In this column yesterday, I asked how the domestic debt principal burden increased by 524 billion liras, while the interest burden increased by 1.7 trillion liras. I know, no one is going to answer, but that’s what I asked. And if they wanted to answer, what would they say?
“It happened once; For a while, we could only borrow money indexed to foreign currency and CPI; This situation became more evident when the Central Bank lowered the interest rate, and even worse, when inflation and exchange rate increased, the payment projection was very distorted; As a result, there has been an increase of 1.7 trillion liras in the last year…”
If they say it, they say it! They can’t say that either, so they keep quiet!
Situation in the last year
I need to make a statement regarding the data on the domestic debt stock. Careful readers will probably notice. There is a time inconsistency between the domestic debt stock that I transferred as of yesterday and today’s data. For example, the domestic debt stock, which was 1 trillion 676 billion liras this July, shows the level at the end of the month. Yesterday I transferred this amount as August data. Because the Treasury’s domestic debt payment projection data shows the situation at the beginning of the relevant month, in other words, the end of the previous month. Therefore, there is a month shift in the data, there is no mistake. Stock status at the end of the month; the projection shows the situation at the beginning of the month and one number corresponds to July in stock and August in projection.
Now let’s see how the composition of the domestic debt stock has changed in the last year.
The structure of the debt stock showed a limited change in the last year. In particular, the share of CPI indexed papers in the total remained almost the same. The share, which was 23.2 percent in July last year, increased to 23.4 percent this year.
The increase in the share of foreign currency indexed papers is much more evident. The share of these papers in the total stock, which was 25 percent in July last year, increased to 30.2 percent this year.
Well, this limited change in shares interest Is it enough to explain the 1.7 trillion increase in the burden of Enough!
Again, as I briefly mentioned yesterday, it is necessary to look at where inflation and exchange rates have climbed.
You are making a payment projection at the beginning of August last year. Dollar 8.50, annual inflation 18.95 percent. It is quite normal to make your calculations according to these values.
Then something happens, some decisions are made; that is, interest rates are lowered and the dollar is skyrocketing, inflation is skyrocketing. You are coming in August this year; $ 18, inflation is based on 80 percent.
When calculating the burden of the future, it is one thing to calculate with 8.50 and 18.95 percent, it is different to calculate with 18 and 80 percent!
Therefore, although the composition of the domestic debt did not change much in the last year, the rise in exchange rates and inflation led to such a result.
FOREIGN EXCHANGE-INDEX DOMESTIC DEBT ZERO OVER SIX YEAR!
A concept called liraization was introduced, but it is the government itself that does not comply with it and even does the opposite. Over the years, foreign currency-indexed guarantees were given, and TL-denominated savings were also indexed to foreign currency with currency-protected deposits. The Treasury also borrowed foreign currency indexed domestic debt starting long ago.
Indexed to domestic debt and foreign currency! Isn’t it beautiful!
For the first time, the share of foreign currency indexed debt in domestic debt exceeded 30 percent at the end of July this year. First time!
In the 2003-2009 period, there was a foreign exchange indexed domestic debt. Then this amount decreased and decreased to zero in 2012. In the period of 2012-2017, there was no foreign currency indexed domestic debt. For six years…
The foreign currency indexed borrowing, which started with a symbolic amount in 2018, increased gradually and we came to the end of July 2022; now 30.2% of Turkey’s domestic debt foreign currency indexed.
Is it possible that close to one third of the domestic debt will be indexed to foreign currency, and the debt payment burden will not increase in the coming years?
Therefore, the amount that we see as the interest burden in the last period will grow more and more rapidly. If we can somehow stop the increase in the exchange rate or even reduce it, and if we can pull back inflation quickly, the situation will change in our favor. Otherwise, it will not be possible to prevent this trend.