The worst economic crisis in Turkish Cypriot history

 April 14, 2024

We have lost hope in this country, shopkeepers say

The annual inflation rate in the northern part of Cyprus hit 94.5 per cent in March as Turkish Cypriots continue to experience the worst economic crisis in their history. Inflation compared to February rose by 6.9 per cent – the highest monthly inflation since the crisis began in 2021.

According to the official figures announced by the Statistical Institute, monthly food inflation in March was 3.4 per cent, which brought the food inflation to 220 per cent since 2022. The price of bread has increased by 25 per cent since the start of this year alone.

‘Bairam meal turns sour,’ a front page on daily Halkin Sesi read, reporting about the exorbitant food prices ahead of the Eid festival (Bairam) this week. The festival marks the end of the holy month of Ramadan.

Even though Turkish Cypriots are among the most liberal Muslims globally, the Eid festival is a very important time of the year when families come together for feasts and celebrations.

‘Barbecue remains a dream during Bairam,’ wrote Star Kibris. ‘Baklava is for the price of gold this Bairam,’ headlined Kibris Postasi.

The Turkish Cypriot economy has been in freefall since 2021 as the Turkish lira continuously declined in value against most major global currencies because of the unorthodox interest-rate-cutting policies of Turkish President Recep Tayyip Erdogan. The official currency in the north is the Turkish lira, which lost some 40 per cent of its value in the past year alone. It has shed a further nine per cent this year. Keeping rates artificially low led to skyrocketing inflation, placing Turkey among the top five inflation champions in the world along with Zimbabwe, Sudan, Venezuela and Argentina.

Annual inflation in Turkey in March was 68.50 per cent, while the monthly inflation was 3.16 per cent.

Last month, Turkey’s central bank raised its key interest rate to 50 per cent in an attempt to combat inflation. Policymakers cited a “deterioration in the inflation outlook.” The central bank predicts Turkish inflation will rise towards 80 per cent by the summer.

The north adopts the Turkish key interest rate.

The fall in the value of the Turkish lira affects Turkish Cypriots even more as the economy is almost completely dependent on imports. Even imports from Turkey are indexed to the dollar. Transportation and import costs are also exacerbated by a cumbersome public administration that creates additional expenses. Moreover, many goods, services and expenses such as real estate, cars, rent and school fees are in foreign currencies although people’s salaries are paid in Turkish liras.

The flow of foreign currency into the Turkish Cypriot market through the increasing number of foreigners living there has also worsened inflation as each sector started to determine prices according to the higher purchasing power of foreigners, according to economists. Unlike in a normal economy, where the value of the local currency would increase with foreign currency inflow, the value of the Turkish Lira didn’t increase as it is not determined by the Turkish Cypriot economy.

“The money inflow with uncertain sources plays a big role in the increase [in inflation],” Turkish Cypriot economics professor Engin Kara of Cardiff University wrote on his social media account. “In the near future, a large part of the economy will be comprised of this money.”

Soaring prices in the northern part of the island have left people, especially those on low or fixed incomes, with plummeting purchasing power and a decline in their living standards. The Cyprus Turkish Civil Servants Union (KTAMS) calculated that a family of four earning the minimum wage is living right at the hunger threshold.

According to KTAMS, the hunger threshold – the amount needed to maintain a healthy, balanced and adequate diet – for a family of four as of the end of March, was 23,644 Turkish Lira (about €687). The minimum wage in the north is currently 24,000 Turkish lira (about €697).

As Turkish Cypriots experienced a huge drop in their purchasing power leading to a decline in their living standards, they also saw their debts rocket.

According to the official figures of the Turkish Cypriot central bank, total borrowing from banks increased 61 per cent as of the end of 2023 compared to the previous year to 87 billion Turkish lira (about €2.5 billion). As of 2022, the total borrowing stood at 53.9 billion (about €1.6 billion).

Together with borrowing, the amount of non-performing loans also increased 58.2 per cent by the end of 2023 compared with 2022 to 4,176 million Turkish liras (about €121 million).

The uncontrollable price increases also deeply affect businesses that have to grapple with constant increases in costs. In the last two months alone, bottled gas and electricity prices increased 7.8 per cent, while fuel prices increased 10.8 per cent.

Head of the chamber of shopkeepers and artisans (KTEZO) Mehmet Ali Ardic told daily Yeniduzen last week there is a 70 per cent closing rate in small food and beverage businesses as they cannot keep up with the increasing costs.

“We have lost our hope in this country,” head of the association of restaurant owners Arif Bayraktar said. “We are just rowing the boat in vain. We are not getting anywhere.”

https://cyprus-mail.com/2024/04/14/the-worst-economic-crisis-in-turkish-cypriot-history/

In deep waters (The Cyprus Weekly, 16 October 2015)

By Esra Aygin

As the much-anticipated water from Turkey reached the northern part of Cyprus earlier this month, through an ambitious trans-Mediterranean pipeline, a bitter crisis has emerged over how this water will be managed.

Returning to the management crisis, Turkey, saying the municipalities in the northern part of Cyprus do not have the financial means and are not qualified to make the extra investments and run the project, is demanding that the operating rights of the water are transferred to a private company through a public tender.

Turkish Cypriot municipalities, on the other hand, are strongly opposing privatisation of the distribution and management of water, saying that this would take away their primary source of income and effectively, spell their end.

The crisis – which initially seemed to be between the Turkish Cypriot “government” and Turkey, with Turkish Cypriot “prime minister” Omer Kalyoncu strongly rejecting the privatisation idea – has turned into a conflict between coalition partners Republican Turkish Party CTP and National Unity Party UBP and now threatens to topple the “government”.

UBP leader Huseyin Ozgurgun, who at first remained silent over the issue, expressed his disapproval of the dispute with Turkey over the management of water. Ozgurgun, earlier this week, said he disagrees with CTP’s position and added that the coalition may collapse due to the disagreement.

“The municipalities are already bankrupt and in debt. How will they manage this water? If the coalition needs to collapse over this issue, let it collapse… We have a debt of gratitude to our motherland,” said Ozgurgun.

The crisis was in fact foreseeable,with Turkey indicating since the beginning that it wanted the operating rights of water to be transferred to a private company with the necessary financial means and know-how.

Turkey states that an additional 600 million Turkish lira (about €180 million) investment must be made by the party that will manage the water to render the project sustainable and cover the operating costs, including the pumping station, treatment plant and electricity expenses. Replacement of antiquated water meters to maximise payment collection, repairing or replacement of the water distribution network to minimise up to 40% leakage loss are among the work that needs to be completed.

Former Turkish Cypriot leader Mehmet Ali Talat’s CTP on the other hand, wants to set up an autonomous water management system for the management of the water. CTP is working on the legal framework of an autonomous Water Institution to be responsible for transferring the water from the dam in Panagra to the Myrtou treatment plant, and to the water tanks of municipalities.

From that point on, BESKI – a company set up by 26 municipalities in the north – will take over the distribution of the water to households, billing and collection, according to CTP’s plan. There is no indication on how BESKI will finance the necessary investments.

CTP is being criticised for not making any efforts to negotiate with or convince Turkey or providing any alternatives for almost two years now, even though it had ample information on Turkey’s privatisation demand.

“We never believed that this water would come,” wrote journalist Aysu Basri Akter on www.gazete360.com

“No politician took this seriously and made it a topic on the agenda. They did not take Turkey’s vision into consideration.

“They did not believe in it… Moreover, they acted with the approach that ‘If there is a project that needs to be done, Turkey will do it’.”

“And in fact, this is exactly what happened. Turkey prepared its strategy, did its homework and completed its project. Now, the debate over whether the water will be managed by an autonomous authority a private company is an overdue and meaningless debate for Turkey…”

As the Panagra dam is slowly filling and preparation is underway for a flamboyant inauguration ceremony with the participation of Turkish President Recep Tayyip Erdogan this weekend, it is unclear how the crisis will be overcome. A protocol that calls for the privatisation of the management of water and the transfer of the ownership of water-distribution pipelines to Turkey, needs to be signed between Turkey and the Turkish Cypriot “government” before the project can be given an official start. Talat has reportedly conveyed to Turkey behind closed doors that he would withdraw from the “government” if the insistence on privatisation continues.

Within the framework of the 1.6 billion Turkish Lira (about €500 million) project to supply the northern part of Cyprus with 75 million cubic metres of drinking and irrigation water annually until 2040, the water from Turkey’s Alakopru Dam in southern Turkey, will be sent to a dam in Panagra.

Half of the 75 million cubic metres of water will be treated in a plant in Myrtou and distributed to Nicosia, Kyrenia, Famagusta-Trikomo and Rizokarpaso regions through an internal distribution network of a total of 475 kilometres.  The other half will be used in irrigation in Mesaoria and Morphou. The project is a first in the world and has used an experimental technology, where the underwater section of the pipeline is not laid on the seabed but suspended 280 meters below the surface of the sea. The total length of the trans-sea pipeline is 80 kilometres, 66.4 kilometres of which constitutes the suspended section.

http://in-cyprus.com/in-deep-waters/