- A massive surge in daily coronavirus cases will force the government to tighten restrictions during the Muslim holy month of Ramadan (starting on 13 April).
- Meanwhile, Ankara’s almost exclusive reliance on the Sinovac vaccine is becoming a major liability due to supply and efficacy concerns.
- Markets expect the TCMB to maintain the key policy rate unchanged on 15 April. This sounds reasonable but given the circumstances the potential for a negative surprise is substantial.
- Already strained US-Turkey ties could worsen due to the likely recognition of the Armenian genocide by US President Joe Biden.
Grappling with Covid-19 surge ahead of tourism season
Turkey is battling a third wave of the virus and daily infections are the fourth highest in the world behind India, the US and Brazil — all countries with far higher populations. The seven-day rolling average of new cases is just below 52,000; it was around 9,300 on 1 March when the government decided to ease restriction. The number of cases in Istanbul has increased nearly tenfold compared with the start of March and the city of around 15mn people now accounts for 40% of all Covid-19 cases recorded in the country. The number of deaths has also risen sharply, by almost 50% since 1 April, leading health professionals to call for an immediate lockdown.
The government blames virus variants for the surge in infections, saying some 85% of total cases across the country are from the variant first identified in the UK. However, criticism from health professionals is mounting and the public is becoming increasingly frustrated. Turkish citizens are also becoming increasingly indifferent to the endless attempts by the government to divert public attention from the raging pandemic and the worsening economic situation. Given the negative trajectory of the pandemic, President Tayyip Erdogan will soon have to announce a tightening of the existing restrictions, a move that will further infuriate the Turks and cause additional economic distress. The government has already announced that all restaurants and cafes will be closed except for takeaway and delivery services from tomorrow (13 April), the first day of Ramadan. It has also signaled that tomorrow will see the announcement of additional measures, which will probably include the closure of gyms and hair salons as well as restrictions on the mobility of individuals.
Apart from its detrimental impacts on the country’s healthcare system and people’s lives, the continued spread of the virus could hurt Turkey’s tourism sector which is banking on a strong season to make up some of the losses of 2020, when revenue fell by around 70% compared to 2019. The US Centre for Disease Control and Prevention has recently placed Turkey on a Level 4 alert over COVID-19, meaning that travelers should avoid all travel to the country. Turkey also remains on the EU’s red list and it is not clear when flights to Turkey from the UK will resume. The Russian authorities are also considering reducing air travel (possibly by suspending charter flights) to Turkey and impose a 14-day quarantine on those returning from Turkey due to the growing number of infections. Russians are normally the largest number of foreign tourists visiting Turkey, with around 7mn arriving in 2019.
Growing concerns about supply and efficacy of Sinovac’s vaccine
Recent developments on the vaccination front are equally, if not more, worrying. Several delays to shipments by China’s Sinovac have forced Ankara to repeatedly revise its vaccination timetable at a time when infections have soared to record highs. Erdogan raised the delay with Chinese Foreign Minister Wang Yi when he visited Ankara at the end of March, stressing that Turkey was supposed to receive 50mn doses by the end of February. At this stage, it remains unclear when Turkey may receive the next shipment from China. Also alarming are the renewed concerns about the efficacy of the Chinese vaccines as Turkey is almost exclusively dependent on Sinovac. At least one dose of the Sinovac vaccine has been administered to around 11mn people, more than 13% of Turkey’s population, since the start of the vaccination rollout.
A pivotal week for the Turkish Lira
Turkey’s beleaguered Lira faces a critical week, with the value of the currency hanging on a 15 April decision by the central bank (TCMB) on interest rates — the first meeting since President Erdogan rocked markets by installing as governor a like-minded critic of tight policy. Markets expect the TCMB to maintain the key policy rate unchanged. This sounds reasonable given the conundrum in which the TCMB finds itself. However, much caution is needed, especially as forecasting rate setting by the TCMB has become guesswork. Even though Governor Sahap Kavcioglu has pledged to deliver price stability, he is an unknown entity. As for the ultimate decision-maker – Erdogan – the surge in infections, declining popularity in the polls, and today’s unemployment data will only reinforce his view that borrowing costs must be cut.
Likely recognition of the Armenian Genocide will rattle US-Turkey ties
Although it is far from certain, momentum appears to be building in Washington for official US recognition of the Armenian Genocide of 1915-16 on Armenian Genocide Remembrance Day on 24 April. President Joe Biden pledged to recognize the genocide during his presidential campaign. Vice President Kamal Harris comes from California, where there is a large Armenian-American community, and was the co-sponsor of a Senate resolution to recognize the genocide in 2019.
Successive Turkish governments have always vigorously denied its role in the Armenian Genocide and recognition by the Biden administration would likely trigger a furious response from not only Erdogan, but across the political spectrum as denial of the genocide is one of the few issues that unites all the mainstream political parties in Turkey. However, although the recognition by other countries in the past of the Armenian Genocide has triggered outrage in Turkey, the reaction has tended to have more bark than bite.