Why Turkey is weaker than Indian inspite of higher GDP per capita

 As of 2023, Turkey's Gross Domestic Product (GDP) per capita is approximately $14,713.57 in current U.S. dollars.

Over the past decade, Turkey's GDP per capita has experienced fluctuations due to various economic factors. Here's a summary of the recent trends:

• 2020: $8,639
• 2021: $9,743 (12.79% increase)
• 2022: $10,675 (9.56% increase)
• 2023: $12,986 (21.65% increase)

These figures indicate a significant upward trend in Turkey's GDP per capita in recent years, reflecting economic growth and development.

Turkey's economic growth in USD terms may look impressive, but its high inflation, volatile currency, and elevated bond yields suggest underlying structural weaknesses. Here's why:

1. High Inflation (Above 60%)

Turkey's inflation has been persistently high, crossing 60% in early 2024. High inflation erodes purchasing power, discourages foreign investment, and weakens the currency. The key reasons for Turkey's inflation include:

• Unorthodox Monetary Policy: The Turkish government, under President Recep Tayyip Erdoğan, believes lower interest rates reduce inflation (contrary to conventional economic theory). This led to artificially low rates in previous years, stoking inflation.
• Weak Lira & Import Costs: Turkey imports a large portion of its energy and raw materials, which become expensive when the Lira depreciates, feeding inflation.
• Wage Pressures & Loose Fiscal Spending: Government wage hikes and stimulus spending add more inflationary pressure.

2. Lira Depreciation & Volatility

The Turkish Lira has lost more than 80% of its value against the USD in the past 5 years, making it one of the most volatile currencies in emerging markets. The reasons:

• Massive Foreign Debt: Turkey's corporates and banks owe hundreds of billions of dollars in foreign debt. When the Lira falls, repaying this debt in USD becomes more expensive.
• Low Confidence & Capital Flight: Investors lack confidence due to policy unpredictability, leading to capital flight (foreigners pulling out investments).
• Persistent Current Account Deficits: Turkey imports more than it exports, leading to chronic trade imbalances, further weakening the Lira.

3. Bond Yields at 30%: Why So High?

Turkish government bonds offer 30%+ yields because:

• High Inflation Risk: Bond investors demand a higher yield to compensate for inflation eroding returns.
• Low Confidence in Monetary Policy: The Central Bank of Turkey has reversed policies multiple times, reducing credibility.
• Lira Depreciation Risk: If the currency weakens further, foreign investors lose on exchange rates, so they demand higher interest rates.

4. Weak Central Bank Independence

The Turkish Central Bank (TCMB) has historically been under pressure from the government. When inflation was rising, Erdoğan forced rate cuts instead of increasing rates, which further destabilized the Lira.

5. Political and Geopolitical Risks

• Foreign Policy Tensions: Turkey has been involved in disputes with the U.S., EU, and Middle Eastern neighbors, leading to economic sanctions and investor nervousness.
• Elections & Populist Policies: The government often adopts short-term populist measures (such as cheap credit and government spending) to boost growth, worsening inflation in the long run.

Bottom Line: Turkey’s Growth Is Not Sustainable Without Structural Reforms

Turkey does not have a productivity-led growth model like China or India. Its growth is largely fueled by cheap credit, fiscal spending, and consumption, which is unsustainable.