Turkey unlikely to qualify for IMF short-term liquidity line, strategist says

Turkey is unlikely to be eligible for funds under a new International Monetary Fund short-term liquidity line (SLL) designed to strengthen nations’ response to the COVID-19 outbreak, according to a leading analyst.

The country does not possess the strong economic fundamentals required to benefit from the capital injection, Tim Ash, senior emerging markets strategist at BlueBay Asset Management in London and a long-time Turkey-watcher, said in e-mailed comments on Friday.

“I would be surprised if Turkey was granted access via the SLL as its terms indicate that countries accessing the facility should have very strong fundamentals and strong policies,” Ash said. “I accept that the above determination is subjective, but the insertion of the word “very” would surely rule Turkey out.”

The lira rose by 1.2 percent to 6.85 per dollar on Friday, reversing losses on Thursday that took the currency to the lowest level against the dollar since the height of the currency crisis in August 2018.

Some investors are speculating that Turkey’s government may apply for IMF money despite President Recep Tayyip Erdoğan ruling out such an option. They point to the country’s finances, already pummelled by a currency crisis in the summer of 2018, saying the government does not have the cash to support the economy otherwise.

“We can debate “strong” fundamentals and policies, but given where inflation is versus target, the currency crash in 2018, unorthodox monetary policy vents, attacks on central bank independence, it’s hardly very strong,” Ash said.

Turkey’s inflation rate stands at almost 12 percent, about three times the average in major emerging markets, and the central bank has slashed interest rates into negative territory, when subtracting inflation, to support the government’s economic growth goals, which now lie in tatters.

The central bank’s net foreign currency reserves depleted when taking account of liabilities, which include currency swaps with local banks.

Ash said that Turkey could still benefit from a special IMF facility to help emerging markets deal with the economic fallout of COVID-19, which carries low conditionality. It could tap $6 billion, he said.

“Nice money, if you can get it, but hardly a game-changer for an $800-billion plus economy, and barely one-tenth of existing FX reserves,” Ash said.