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Turkey, an Energy Hub or drowned in Economical crisis?

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Turkish Economy have experienced great developments during last six decades, more than most of countries around the world. Accelerating Turkish economic growth made mainly by export-led policy (after 1980) and the economical reforms (after 2003) when current president Recep Tayyip Erdoğan started his role as PM.

Some of the achievements have been reached as a result of Turkey’s geopolitical position, where is a connection node between producers and consumers of energy and industrial goods and some could be awarded to the government’s plans, mainly for free international trade, developing tourism industry, privatization, earning income and accessing the chip energy sources via it’s energy transiting plans.

Turkish economic growth analysis in a glance

Turkish GDP was increased to $ 875.748 billion at 2016 where it was just $ 13.995 billion at 1960 (from worldbank.com), a wonderful raising by more than 60 times that is faster than world average but not enough uninterrupted to be compared with some pioneer economies such as Korea republic.

The sharpest rate of Turkish economical growth was experienced in 1970s decade (%223.08), mostly resulted by boosting governmental spending after 1971 military intervention. The biggest growth in amount was in 2010s decade that experienced increasing $ 411.92 billion during 6 years. Comparing Turkey’s achievement with Korea Republic’s shows lack of harmony and Continuity in Turkish economical growth, while Korea’s economy moved from $ 4.23 billion (32% of Turkish) in 1960s decade to $ 1,290 billion (1.48 of Turkish) in 2010s duration.

Main growth areas

Ruling party’s economical reforms, such as strong domestic consumption, cheap credit and large financial inflows, enhancing the flexibility of the labour market and boosting the competitiveness of the manufacturing sector through greater competition, could enhance it’s rank to world’s 17th in 2015.Some sectors are playing main role in this economic leap, such as Tourism while could attract more than 36 million tourists In 2015 that raised Turkey’s revenues to 31 billion USD per year (from: www.mfa.gov.tr), as well as Privatization that it’s earning was increased significantly from 8 billion USD in the period of 1986-2003 to 58 billion USD between 2004-2015 (from the same source). Turkish contracting services abroad have successfully completed 8693 projects in 107 countries across the globe between 1972-2015, with a total value of 276 billion USD between 2002-2015  (from the same source). As well as Turkish economy could host more than 46,000 foreign active firms and 916 liaison offices of foreign firms, as well as the total amount of foreign direct investments exceeded 165 billion USD as of the end of 2015.

The same sharp raising could be traced in Turkey’s foreign trade during last decades, too, when Turkey’s export was raised to $142.53 billion at 2016 from $12.96 billion at 1990 (%1100) that is sharper than growth in it’s importing, where it was changed from $22.30 billion to $198.62 billion during the same period of time (%891) but the balance of Turkey’s trade is negative yet and extended to $56.09 billion.

An Energy Hub

Turkey’s plan for rolling as the hub of energy between main producers in middle east, Caspian and Russia to main customers in Europe entered to a new phase by signing the Turkish Stream contract with Russia in 2014. Now 4 operating natural gas pipelines through Turkey with capacity of more than 2.3 Tcf are supplying Turkey’s demand and transiting gas to the Europe customers. Also 3 projects in the construction phase and 3 new proposed projects with total capacity of more than 4.8 Tcf could make Turkey one of the main Energy transiting hubs in the world that could powering it’s geopolitical plans as well as giving significant economical advantages.

As well as, 3 Crude oil pipelines from Baku, Kirkuk (Iraq) and Kurdistan Government of Iraq with capacity of more than 3.4 million barrels of oil per day are transiting Azerbaijan, Kazakhstan and Iraq’s crude oil to/via Turkey. Turkey’s Ceyhan oil port covers 1.44 sq.km, storage capacity of about 7 million barrels of oil and annual export capacity of more than 50 million tones of oil annually (from: bp.com).

Increasing demands in European countries for energy carriers, mainly the natural gas as a cleaner and chipper product and on the other the natural gas producers’ need for chipper and operational solution to reach the Europe market, make Turkish ways more highlighted and Turkey’s governments are trying to catch this opportunity, economically and politically.

Transiting 7.1 Tcf of natural gas and 3.4 million barrels of oil could make Turkey one of the main energy transition hubs around the world that not only make significant economical benefits but also could support it’s political plans such as accession of Turkey to the European Union, the desire is sometimes closed and sometime far.

Turkey’s in economical crisis

Despite all the longterm growth in indictors, Turkey’s economy is facing new crisis during last 3 years, especially after some internal clashes and tensions with with Russia, united states and European countries. Turkish Liras’ exchange rate to foreign currencies is dropped sharply and reached to 3.88 to USD (at 2017, December) from 1.8 in 2012 (less than half, just during 5 years).

Also inflation rate is raised to more than % 10.9 at 2017, when it was decreased to 7.7% at 2015 (from IMF).

The GDP per capita that was raised to about $ 12,500 at 2013 is declined again to $ 10,800 at 2016 for three consequently years (the same level at 2008).

The situation in some other indicators such as “population below poverty line” are showing more shortages or crisis, when it was raised to more than %21 at 2016.

Continuing this conditions could abduct the chances of improvements for Turkish government and people while it’s most needed for both to hold over the dreams.

Future of Turkey’s economy – Short term provision

The short term provisions of Turkish economy are not optimistic enough, especially after several diplomatic and economical clashes between Turkey and it’s main partners during last  three years.

Russia imposed sanctions against Turkey at 2015, November that affected Turkish economy quickly but it couldn’t get rid of them even after 7 months of removing most of these sanctions.

Turkey – Russia clashes on downing of a Russian fighter jet in 2015 led to sanctions

Turkish economy that has been affected quickly by sanctions imposed by Russia (at 2015, November) doesn’t get rid of them completely, even after more than 7 months of easing tensions and lifting the most of sanctions. In the case of removing all Russian sanctions, it couldn’t bring relief to Turkey’s struggling economy as it’s faced to a bigger crisis arising by political clashes with European countries, especially Netherland, Germany and Belgium and next with USA.

Furthermore, effects of internal clashes (especially after failed coup in 2016) and hosting million refugees from Syrian internal war made the Turkey’s economy battered which was one of the best – performing until 2014.

The Turkey’s economy could experience new small growths by easing the internal and international conflicts before next elections on 2019 but not as was before 2014.

Now it’s time for Turkey to select it’s ambitious plans for being one of the main energy hubs in the world that could affect on global energy markets and having rapid growing economies or drowned in diverse economical crisis.

Independent Energy Economy Analyst and Energy Development Consultant Managing Director of ARDO Consultancy center http://ardoconsultancy.co/

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Bangladesh-Myanmar Economic Ties: Addressing the Next Generation Challenges

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Bangladesh-Myanmar relations have developed through phases of cooperation and conflict. Conflict in this case is not meant in the sense of confrontation, but only in the sense of conflict of interests and resultant diplomatic face-offs. Myanmar is the only other neighbor that Bangladesh has on its border besides India. It is the potential gateway for an alternative land route opening towards China and South-East Asia other than the sea. Historically, these two countries have geographic and cultural linkages. These two bordering countries, located in separate geopolitical regions, have huge possibilities in developing their bilateral economic relations. At the initial phase of their statehood, both countries undertook numerous constructive initiatives to improve their relations. Nevertheless, different bilateral disputes and challenges troubled entire range of cooperation. Subsequent to these challenges, Bangladesh and Myanmar have started negotiation process on key dubious issues. The economic rationales over political tensions in Bangladesh-Myanmar relations prevail with new prospects and opportunities.

Bangladesh-Myanmar relations officially began from 13 January 1972, the date on which Myanmar, as the sixth state, recognized Bangladesh as a sovereign nation. They signed several agreements on trade and business such as general trade agreement in 1973. The two countries later initiated formal trade relations on 05 September 1995. To increase demand for Bangladeshi products in Myanmar, Bangladesh opened trade exhibitions from 1995 to 1996 in Yangon, former capital of Myanmar. However, that pleasant bilateral economic relations did not last for long, rather was soon interrupted mainly by Myanmar’s long term authoritarian rule and isolationist economic policy. In the twenty-first century, Bangladesh-Myanmar relations are expected to move towards greater economic cooperation facilitated by two significant factors. First, the victory of Myanmar’s pro-democratic leader, Aung San Suu Kyi, in 2011 has considerably brought new dimensions in the relations. Although this relation is now at stake since the state power has been taken over by military. Second, the peaceful settlement of Bangladesh-Myanmar maritime dispute in 2012 added new dimension in their economic relations.

Bangladesh and Myanmar don’t share a substantial volume of trade and neither is in the list of largest trading partners. Bangladesh’s total export and import with Myanmar is trifling compared to the total export and import and so do Myanmar’s. But gradually the trades between the countries are increasing and the trend is for the last 5 to 6 year is upward especially for Bangladesh; although Bangladesh is facing a negative trend in Balance of Payment. In 2018-2019 fiscal year, Bangladesh’s total export to Myanmar was $25.11 million which is more than double from that of the export in 2011-12. Bangladesh imported $90.91 million worth goods and services from Myanmar resulting in $65 Million deficit in Balance of Payment in 2018-2019 fiscal year. For the last six or seven years, Bangladesh’s Balance of Payment was continuously in deficit in case of trade with Myanmar. The outbreak of COVID-19, closure of border for eight months and recent coup in Myanmar have a negative impact on the trade between the countries. 

Bangladesh mainly imports livestock, vegetable products including onion, prepared foodstuffs, beverages, tobacco, plastics, raw hides and skin, leather, wood and articles of woods, footwear, textiles and artificial human hair from Myanmar. Recently, due to India’s ban on cattle export, Myanmar has emerged as a new exporter of live animals to Bangladesh especially during the Eid ul-Adha with a cheaper rate than India. On the hand, Bangladesh exports frozen foods, chemicals, leather, agro-products, jute products, knitwear, fish, timber and woven garments to Myanmar.

Unresolved Rohingya crisis, Myanmar’s highly unpredictable political landscape, lack of bilateral connectivity, shadow economy created from illegal activities, distrust created due to different insurgent groups, maritime boundary dispute, illegal drugs and arms smuggling in border areas, skeptic mindset of the people in both fronts and alleged cross border movement of insurgents are acting as stumbling block in bolstering economic relations between Bangladesh and Myanmar.

Bangladesh-Myanmar relations are yet to blossom in full swing. The agreement signed by Sheikh Hasina in 2011 to establish a Joint Commission for Bilateral Cooperation is definitely a proactive step for enhancing trade. People to people contact can be increased for building mutual confidence and trust. Frequent visit by business, civil society, military and civil administration delegates may be organized for better understanding and communication. Both countries may explore economic potential and address common interest for enhancing economic co-operation. In order to augment trade, both countries may ease visa restrictions, deregulate currency restrictions and establish smooth channel of financial transactions. Coastal shipping (especially cargo vessels between Chittagong and Sittwe), air and road connectivity may be developed to inflate trade and tourism. Bangladesh and Myanmar may establish “Point of Contact” to facilitate first-hand information exchange for greater openness. Initiative may be taken to sign Preferential Trade Agreement (PTA) within the ambit of which potential export items from both countries would be allowed to enter duty free. In recent year, Bangladesh was badly affected by many unilateral decisions of India such as onion crisis. Myanmar can serve as an alternative import source of crops and animals for Bangladesh to lessen dependence upon India.

Myanmar’s currency is highly devaluated for a long time due to its political turmoil and sanctions by the west. Myanmar can strengthen its currency value by escalating trade volume with Bangladesh. These two countries can fortify their local economy in boarder areas by establishing border haats. Cooperation between these two countries on “Blue Economy” may be source of strategic advantages mainly by exporting marine goods and service. Last but not the least, the peaceful settlement of maritime boundary disputes between Bangladesh and Myanmar in 2012 may be capitalized to add new dimension in their bilateral economic relations. Both nations can expand trade and investment by utilizing the Memorandum of Understanding on the establishment of a Joint Business Council (JBC) between the Republic of the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI) and the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI).

With the start of a new phase in Bangladesh-Myanmar relations, which has put the bilateral relations on an upswing, it is only natural that both sides should try to give a boost to bilateral trade. Bilateral trade is not challenge free but the issue is far easier to resolve than others. At the same time, closer economic ties could also help in resolving other bilateral disputes. For Myanmar, as it is facing currency devaluation and losing market, increased trade volume will make their economy vibrant. For Bangladesh, it is a good opportunity to use the momentum to minimize trade deficits and reduce dependency on any specific country.

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The Monetary Policy of Pakistan: SBP Maintains the Policy Rate

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The State Bank of Pakistan (SBP) announced its bi-monthly monetary policy yesterday, 27th July 2021. Pakistan’s Central bank retained the benchmark interest rate at 7% after reviewing the national economy in midst of a fourth wave of the coronavirus surging throughout the country. The policy rate is a huge factor that relents the growth and inflationary pressures in an economy. The rate was majorly retained due to the growing consumer and business confidence as the global economy rebounds from the coronavirus. The State Bank had slashed the interest rate by 625 basis points to 7% back in the March-June 2020 in the wake of the covid pandemic wreaking havoc on the struggling industries of Pakistan. In a poll conducted earlier, about 89% of the participants expected this outcome of the session. It was a leap of confidence from the last poll conducted in May when 73% of the participants expected the State Bank to hold the discount rate at this level.

The State Bank Governor, Dr. Raza Baqir, emphasized that the Monetary Policy Committee (MPC) has resorted to holding the 7% discount rate to allow the economy to recover properly. He added that the central bank would not hike the interest rate until the demand shows noticeable growth and becomes sustainable. He echoed the sage economists by reminding them that the State Bank wants to relay a breather to Pakistan’s economy before pushing the brakes. The MPC further asserted that the Real Discount Rate (adjusted for inflation) currently stands at -3% which has significantly cushioned the economy and encouraged smaller industries to grow despite the throes of the pandemic.

Dr. Raza Baqir further went on to discuss the current account deficit staged last month. He added that the 11-month streak of the current account surplus was cut short largely due to the loan payments made in June. The MPC further explained that multiple factors including an impending expiration of the federal budget, concurrent payments due to lenders, and import of vaccines, weighed heavily down on the national exchequer. He further iterated that the State Bank expects a rise in exports along with a sustained recovery in the remittance flow till the end of 2021 to once again upend the current account into surplus. Dr. Raza Baqir assured that the current level of the current account deficit (standing at 3% of the GDP) is stable. The MPC reminded that majority of the developing countries stand with a current account deficit due to growth prospects and import dependency. The claims were backed as Dr. Raza Baqir voiced his optimism regarding the GDP growth extending from 3.9% to 5% by the end of FY21-22. 

Regarding currency depreciation, Dr. Baqir added that the downfall is largely associated with the strengthening greenback in the global market coupled with high volatility in the oil market which disgruntled almost every oil-importing country, including Pakistan. He further remarked, however, that as the global economy is vying stability, the situation would brighten up in the forthcoming months. Mr. Baqir emphasized that the current account deficit stands at the lowest level in the last decade while the remittances have grown by 25% relative to yesteryear. Combined with proceeds from the recently floated Eurobonds and financial assistance from international lenders including the IMF and the World Bank, both the currency and the deficit would eventually recover as the global market corrects in the following months.

Lastly, the Governor State Bank addressed the rampant inflation in the economy. He stated that despite a hyperinflation scenario that clocked 8.9% inflation last month, the discount rates are deliberately kept below. Mr. Baqir added that the inflation rate was largely within the limits of 7-9% inflation gauged by the State Bank earlier this year. However, he further added that the State Bank is making efforts to curb the unrelenting inflation. He remarked that as the peak summer demand is closing with July, the one-way pressure on the rupee would subsequently plummet and would allow relief in prices.

The MPC has retained the discount rate at 7% for the fifth consecutive time. The policy shows that despite a rebound in growth and prosperity, the threat of the delta variant still looms. Karachi, Pakistan’s busiest metropolis and commercial hub, has recently witnessed a considerable surge in infections. The positivity ratio clocked 26% in Karachi as the national figure inched towards 7% positivity. The worrisome situation warrants the decision of the State Bank of Pakistan. Dr. Raza Baqir concluded the session by assuring that despite raging inflation, the State Bank would not resort to a rate hike until the economy fully returns to the pre-pandemic levels of employment and production. He further assuaged the concerns by signifying the future hike in the policy rate would be gradual in nature, contrast to the 2019 hike that shuffled the markets beyond expectation.

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Reforms Key to Romania’s Resilient Recovery

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Over the past decade, Romania has achieved a remarkable track record of high economic growth, sustained poverty reduction, and rising household incomes. An EU member since 2007, the country’s economic growth was one of the highest in the EU during the period 2010-2020.

Like the rest of the world, however, Romania has been profoundly impacted by the COVID-19 pandemic. In 2020, the economy contracted by 3.9 percent and the unemployment rate reached 5.5 percent in July before dropping slightly to 5.3 percent in December. Trade and services decreased by 4.7 percent, while sectors such as tourism and hospitality were severely affected. Hard won gains in poverty reduction were temporarily reversed and social and economic inequality increased.

The Romanian government acted swiftly in response to the crisis, providing a fiscal stimulus of 4.4 percent of GDP in 2020 to help keep the economy moving. Economic activity was also supported by a resilient private sector. Today, Romania’s economy is showing good signs of recovery and is projected to grow at around 7 percent in 2021, making it one of the few EU economies expected to reach pre-pandemic growth levels this year. This is very promising.

Yet the road ahead remains highly uncertain, and Romania faces several important challenges.

The pandemic has exposed the vulnerability of Romania’s institutions to adverse shocks, exacerbated existing fiscal pressures, and widened gaps in healthcare, education, employment, and social protection.

Poverty increased significantly among the population in 2020, especially among vulnerable communities such as the Roma, and remains elevated in 2021 due to the triple-hit of the ongoing pandemic, poor agricultural yields, and declining remittance incomes.

Frontline workers, low-skilled and temporary workers, the self-employed, women, youth, and small businesses have all been disproportionately impacted by the crisis, including through lost salaries, jobs, and opportunities.

The pandemic has also highlighted deep-rooted inequalities. Jobs in the informal sector and critical income via remittances from abroad have been severely limited for communities that depend on them most, especially the Roma, the country’s most vulnerable group.

How can Romania address these challenges and ensure a green, resilient, and inclusive recovery for all?

Reforms in several key areas can pave the way forward.

First, tax policy and administration require further progress. If Romania is to spend more on pensions, education, or health, it must boost revenue collection. Currently, Romania collects less than 27 percent of GDP in budget revenue, which is the second lowest share in the EU. Measures to increase revenues and efficiency could include improving tax revenue collection, including through digitalization of tax administration and removal of tax exemptions, for example.

Second, public expenditure priorities require adjustment. With the third lowest public spending per GDP among EU countries, Romania already has limited space to cut expenditures, but could focus on making them more efficient, while addressing pressures stemming from its large public sector wage bill. Public employment and wages, for instance, would benefit from a review of wage structures and linking pay with performance.

Third, ensuring sustainability of the country’s pension fund is a high priority. The deficit of the pension fund is currently around 2 percent of GDP, which is subsidized from the state budget. The fund would therefore benefit from closer examination of the pension indexation formula, the number of years of contribution, and the role of special pensions.

Fourth is reform and restructuring of State-Owned Enterprises, which play a significant role in Romania’s economy. SOEs account for about 4.5 percent of employment and are dominant in vital sectors such as transport and energy. Immediate steps could include improving corporate governance of SOEs and careful analysis of the selection and reward of SOE executives and non-executive bodies, which must be done objectively to ensure that management acts in the best interest of companies.

Finally, enhancing social protection must be central to the government’s efforts to boost effectiveness of the public sector and deliver better services for citizens. Better targeted social assistance will be more effective in reaching and supporting vulnerable households and individuals. Strategic investments in infrastructure, people’s skills development, and public services can also help close the large gaps that exist across regions.

None of this will be possible without sustained commitment and dedicated resources. Fortunately, Romania will be able to access significant EU funds through its National Recovery and Resilience Plan, which will enable greater investment in large and important sectors such as transportation, infrastructure to support greater deployment of renewable energy, education, and healthcare.

Achieving a resilient post-pandemic recovery will also mean advancing in critical areas like green transition and digital transformation – major new opportunities to generate substantial returns on investment for Romania’s economy.

I recently returned from my first official trip to Romania where I met with country and government leaders, civil society representatives, academia, and members of the local community. We discussed a wide range of topics including reforms, fiscal consolidation, social inclusion, renewably energy, and disaster risk management. I was highly impressed by their determination to see Romania emerge even stronger from the pandemic. I believe it is possible. To this end, I reiterated the World Bank’s continued support to all Romanians for a safe, bright, and prosperous future.

First appeared in Romanian language in Digi24.ro, via World Bank

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