Turkey’s foreign currency and gold reserves tumbled $17 billion in the six weeks before Sunday’s general election as Recep Tayyip Erdoğan’s government sought to prop up the economy and lira ahead of the tightly contested race, the Financial Times reported.
The central bank’s foreign currency war chest dropped by $9.5 billion from the end of March to May 12, while its gold holdings fell $7.9 billion, according to Financial Times calculations based on official data. Both figures represented a decline of 15 percent.
The declines come as investors and analysts are becoming increasingly concerned about the unconventional economic programs the Erdoğan government has used to stabilize the economy. Those fears have only been exacerbated since Erdoğan’s strong showing in Sunday’s first-round vote put him in pole position for another five years as president.
The soaring demand for gold, meanwhile, was driven by local buyers seeking a safe asset to protect their savings at a time of acute inflation and a lira that is trading near record lows.
“There’s a growing demand for dollars and gold in the market,” said Enver Erkan, chief economist at Istanbul-based brokerage Dinamik Yatırım Menkul Değerler. “The central bank is doing whatever it can, but that’s not a sustainable approach, because there’s not much left in the tank, in terms of reserves.”
The general election was seen as a potential economic turning point for Turkey, with Erdoğan’s main challenger Kemal Kılıçdaroğlu promising a series of economic reforms.
However, Erdoğan’s unexpectedly strong first round — he failed to secure an outright majority but scored a much bigger share of the vote than his rival — has heaped pressure on the lira and knocked other Turkish assets ahead of the May 28 runoff vote.
Foreign currency reserves registered $53.2 billion as of May 12, two days before Sunday’s election, but those figures include tens of billions of dollars borrowed from domestic banks through short-term agreements known as “swaps.” Reserves had been $75 billion at the end of 2022. Tim Ash at BlueBay Asset Management described the fall in reserves as “huge.”
Fitch Ratings told the Financial Times this week that pressure on foreign currency reserves increased as the government took a strongly pro-growth approach before the elections, and because these assets are helping to finance Turkey’s near-record current account deficit. Economists also say the central bank has used reserves for years to slow the currency’s fall.
Turkish authorities have made it more difficult for local consumers and businesses to purchase foreign currencies, as part of Erdoğan’s attempt to prop up the lira and reduce the use of the dollar and euros across the $900 billion economy.
Many are turning to gold as a way to protect their savings, against a lira that has fallen 60 percent against the dollar over the past two years to a record low, and persistently high inflation that has diminished the currency’s purchasing power at home.