A slim majority approved the referendum on constitution change held in April. Most of the constitution modifications will be effective after the parliamentary and presidential elections scheduled for November 2019. Following the elections, the power of the president will increase as it will be able to appoint judges and senior bureaucrats, issue decrees with the force of law, declare a state of emergency and dissolve the parliament. The post of Prime Minister will be abolished. The parliament will retain some oversight and legislative powers. Following the “yes” vote, President Erdogan rejoined the ruling AKP party as the amendment that reverses a requirement for the president to be non-partisan comes into effect immediately. The referendum was also followed by new arrests of people suspected of having links with the Fethullah Gulen Terrorist Organisation (FETO) highlighting that the purge which followed the failed coup in July last year continues.    

Impact on country risk

The constitution amendment fundamentally changes the organisation of the Turkish state from a parliamentary system – where the presidency is a representative function – to an executive presidency with light checks on the head of the state. Following the approval of the constitution reform, the Turkish lira appreciated somewhat against the USD (cf. graph). Looking ahead, the government is likely to try to stimulate economic growth ahead of the 2019 elections, putting pressure on inflation – which is likely to be in double figures this year – and fiscal balance. The current deficit is expected to widen to 4.7% of GDP compared to 3.8% last year. Foreign exchange reserves – which cover more than 4 months of imports, a sufficient level – are slightly under pressure. The Turkish economy’s Achilles heel continues to be its high reliance on short term financing as its short term debt – even if it is on a downward path – still accounts for nearly 50% of its current account receipts. In this context, Credendo’s short-term political risk – currently in category 3 – remains under pressure.

Analyst: Pascaline della Faille, p.dellafaille@credendo.com