Turkey risks a sharp contraction on looming external debt repayments – JP Morgan

In a client note on the Turkish economy published this Wednesday, JP Morgan flagged risks of a sharp contraction for the embattled economy, as its external debt matures next year.

Key Highlights (via Reuters):

“Around $179 billion in Turkish external debt matures in the year to July 2019, equivalent to almost a quarter of its annual economic output,

Most of the maturing debt — around $146 billion — is owed by the private sector, especially banks.

The government needs to repay or roll over just $4.3 billion and public-sector entities account for the rest

The currency’s collapse has raised fears companies may face difficulties repaying hard-currency debt and also weighed on shares of European banks exposed to Turkey.

Last year Turkey’s stock of external debt as a percentage of gross domestic product was approaching the record highs seen just before its 2001-2002 financial crisis.

Financing needs over the next 12 months are large and access to markets has become problematic.

As international banks are likely to at least partially reduce their exposure to Turkey, roll-over of principal could be challenging for some entities.

In all, it reckons roughly $108 billion of debt maturing through July 2019 had high roll-over risk.

In a sudden stop of capital flows, roll-over risks will mount and financing of the current account deficit will be difficult.