The foreign exchange liabilities of Turkey’s non-financial firms moved up by 11% y/y to $337bn at end-March, while their FX assets increased by 9% y/y to $115bn, central bank data showed on July 4.

Consequently, the net short FX position of the non-financial firms rose by 12% y/y to $222bn at end-Q1.

Short FX positions leave companies vulnerable to currency fluctuations and the Turkish lira has endured a collapse against the dollar in the year to date.

Non-financial companies’ FX liabilities hit as much as $337bn in February 2018 having only been $31.6bn in 2002, while their FX assets saw a peak of $115bn at end-2017 versus $25.1bn in 2002.

The net short FX position rose by 4% y/y to $213bn at end-2017.

Turkish non-financial companies’ short-term foreign exchange surplus contracted by a sharp 69% y/y to $2.25bn in March, the central bank added.

Warnings that the routing of the lira could presage a financial crisis in Turkey are spreading. Writing in The New York Times on May 24, Nobel Prize-winning economist Paul Krugman said: “What’s happening in Turkey is a classic currency-and-debt crisis, of a kind we’ve seen many times in Asia and Latin America. First, a nation becomes popular with international investors and runs up substantial foreign debt—in Turkey’s case, largely debt owed by domestic corporations.

“Then it starts, for whatever reason, to lose its luster: Right now, emerging markets in general are being weighed down by a rising dollar and rising U.S. interest rates. And at that point a self-reinforcing crisis becomes possible: External factors cause a loss in confidence, which causes a country’s currency to drop, but the falling currency causes the domestic value of those foreign debts to explode, worsening the economy, leading to further declines in confidence, and so on.”