One of the most common BS I have been reading about lately is that Turkey's debt to GDP ratio, now at 47%, is low compared to developed countries.
Simple cross country comparisons, which ignore the vastly different absorption capacity of countries, can be highly misleading. Fellow economist and friend Murat Ucer of Turkey Data Monitor summed up very well in a recent report:
Simple cross country comparisons, which ignore the vastly different absorption capacity of countries, can be highly misleading. Fellow economist and friend Murat Ucer of Turkey Data Monitor summed up very well in a recent report:
So to those who keep telling us that the debt-to-GDP ratio is very low in Turkey, and hence further fiscal expansion and/or a very gradual adjustment are affordable, our response is unchanged: it’s not the level, but the speed (with which debt is rising), the maturity (still short at about 3 years on newly issued debt), and absorptive capacity (of financial markets) that are concerning us.
Murat does raise three important points, two of which can be summarized with a simple chart prepared from Murat own's proprietary software:
You can see below that debt has been rising quite fast recently, after having turned an inflection point during the summer of last year. As for the maturity, while the maturity of new debt is promising, average maturity is still way too low.
As for the absorptive capacity of markets, I think it is about to be tested soon; there are several ways of showing that, but I am leaving that to another post.
In sum, unless a big positive exogenous positive shock such as improvement in global risk appetite or an IMF agreement (the latter could also be considered endogenous in the sense that the challenging scenario can induce the PM change his mind on an agreement with the Fund), a tough year awauts the Treasury in 2010.
You can see below that debt has been rising quite fast recently, after having turned an inflection point during the summer of last year. As for the maturity, while the maturity of new debt is promising, average maturity is still way too low.
As for the absorptive capacity of markets, I think it is about to be tested soon; there are several ways of showing that, but I am leaving that to another post.
In sum, unless a big positive exogenous positive shock such as improvement in global risk appetite or an IMF agreement (the latter could also be considered endogenous in the sense that the challenging scenario can induce the PM change his mind on an agreement with the Fund), a tough year awauts the Treasury in 2010.
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