Ebury, the fintech of international payments and collections and currency exchange, ensures that the forecast for the Turkish lira during 2021 will remain volatile, which would advise Spanish companies that maintain commercial relations with that country to adopt a series of precautions in order to protect the margin of their operations and not incur losses.
In a webinar about this currency and the keys to face its high volatility, Noyan Serim, Ebury Business Analyst, has highlighted the advantages that importers can represent invoicing or paying their operations directly in Turkish lira, while reduces currency risk and more advantageous operations for both parties can also be negotiated as a consequence of reducing costs for the supplier.
In the opinion of this analyst, exporters / suppliers that carry out their operations in lira reduce currency risk and can charge faster through financing solutions such as those offered by fintech.
The expert has pointed out that products such as insurance parallel forward manage to reduce currency risk for both parties in an environment of high volatility such as the present, due to the way of covering the conditions agreed by the client and the supplier.
“Invoicing Turkish suppliers in lira instead of euros or dollars allows buyers to enjoy stable prices from suppliers and limits price increases due to fluctuations in the prices of these currencies. Buyers can fix the price of the lira for a period of 2 years, thus shielding the margins of their operations.”, Explained Noyan Serim.
Positive trade balance for Turkey from 2018
In 2020, Spanish exports to Turkey totaled € 4,261 million, a 4% drop compared to the previous year; imports from Turkey amount to € 6,314 million, a fall of 17%, according to data from ICEX. For experts, the traditional balance that maintained the trade balance between the two countries was broken as of 2018, marking an unfavorable trend for Spain given the strength shown by Turkish exports, favored by the increase in price-competitiveness derived from the gradual depreciation of the Turkish lira and weak domestic demand.
Mattew Ryan, a member of the Ebury Analysis team, has explained in relation to the volatility expected this year for the Turkish lira that “It is unlikely that the country’s external imbalances will disappear soon”, and further believes that “the country’s high external debt can get it in trouble once global interest rates rise”. However, he believes that real interest rates in Turkey, which remain positive, may offset part of the fall in the Turkish currency.
The Ebury analyst stressed that the adverse forecast for the Turkish currency contrasts with a more optimistic view for emerging market currencies in 2021, particularly against the US dollar. “The global supply of vaccines and the lifting of restrictions should improve the mood for risk ”Mattew Ryan has pointed out.
Since 2021 began, the Turkish lira has lost more than 10% of its value against the dollar and around 8.5% against the euro. The reasons that have led the market to get rid of Turkish liras have been, according to the Ebury analyst, the unorthodox monetary policy applied by the country’s Central Bank, whose decisions have been highly conditioned by political decisions of the Head of State; the weakness of the country’s economic indicators, generally a high current account deficit, low levels of monetary reserves and high external debt. And to this is added persistent inflation and, more recently, with the third wave of the pandemic, a very important increase in the number of cases.
These factors have weighed more than the growth experienced by the Turkish economy in 2020, which stood at 1.8%, making it one of the few countries in the world that recorded progress in its GDP in a context as adverse as the one experienced. The forecast for this year places the growth rate at 5%.