The Turkish government’s monetary expansion policies, used as a quick fix to prevent major economic contractions, have resulted in an extraordinary consumer and corporate debt that poses further dilemmas for Ankara down the road.

Over the past year, the loan volume grew 40% as Ankara facilitated access to credit in a bid to contain the economic downturn caused by the coronavirus pandemic, which hit atop economic turmoil since 2018. The loan bonanza did stimulate the economy, but how lasting that impact will be remains open to question — not to mention its serious side effects that have already forced Ankara to change course.

Governments across the world have used expansionary monetary policies to cushion the economic fallout of the pandemic. Such measures have usually come in tandem with expansionary fiscal policies, including direct cash transfers. In Turkey, the government’s primary response was to facilitate access to credit. The minimal direct assistance has totaled less than 1% of the country’s gross domestic product (GDP), including some 8 billion Turkish liras ($1.1 billion) in so-called “social shield” aid from the central government budget and about 36 billion liras ($4.7 billion) in payments from the Unemployment Insurance Fund.

Written by Mustafa Sönmez