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Fin24.com | Turkey crisis in charts: Worse than Lehman, similar to 1998

Supporters of the

Supporters of the "No" march are set to submit their petition to call for the annulment of a referendum that approved sweeping constitutional changes boosting President Recep Tayyip Erdogan's powers, claiming blatant vote-rigging had swung the result. (Yasin Akgul, AFP)

Turkey is mired in one of the worst currency routs in emerging-market history, with few signs of how it will end. The lira fell as much as 17% Friday, capping the biggest slump since the country’s banking crisis in 2001, and is down nearly 30% since President Recep Tayyip Erdogan was returned to office with sweeping new powers in late June.

Here are the charts that highlight the strains the country is facing:

turkey
turkey

As the lira melts down, the costs to trade the currency have soared. The bid-ask spread, or the difference between the price dealers are willing to buy and sell the lira at, has widened beyond the gap seen at the depth of the global financial crisis in 2008, following Lehman Brothers Holdings Inc.’s collapse. Although it hasn’t quite reached the 2015 records. The poor liquidity points to a dysfunctional market.

The weakness makes it more expensive for Turkish borrowers to pay back foreign-currency loans. As a result, the country’s default risk has soared, driving up the cost of insuring against such an event using swaps. Turkey is now seen as more likely to default on its debt than Greece, which is rated four notches lower by Moody’s Investor Service. The current CDS pricing implies a 25% probability of non-payment in the next five years, data compiled by Bloomberg show.

Lacking domestic funding sources, Turkey needs to borrow from foreign investors to sustain its spending. Its funding gap now is similar to that seen before the Asian currency crisis in the late 1990s, and the Latin America debt crisis in the 1980s, according to Goldman Sachs.

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