The worst economic crisis in Turkish Cypriot history has hit hard, with soaring inflation rates of 94.5% leading to a steep cost-of-living surge. The devaluation of the Turkish lira, heavy reliance on imports, and foreign currency issues have left the community struggling amidst diminished purchasing power, marking a grim chapter in Northern Cyprus.
What is the current economic crisis in Turkish Cypriot history?
The economic crisis in Turkish Cypriot history is marked by soaring inflation rates, reaching 94.5%. The devaluation of the Turkish lira, heavy reliance on imports, and foreign currency issues have led to diminished purchasing power and a cost-of-living surge, making it the worst economic turmoil in Northern Cyprus to date.
The Struggle of Shopkeepers Amidst Soaring Inflation
The shopkeepers’ sentiment is grim in the northern part of Cyprus, where the worst economic crisis in Turkish Cypriot history is unfolding. With an annual inflation rate reaching a staggering 94.5% in March, the situation has escalated rapidly since the crisis’s onset in 2021. February alone saw a 6.9% increase in inflation, marking the highest monthly rise during this period. The food sector has been hit particularly hard, with a 3.4% increase in food inflation for March, culminating in a 220% surge since the previous year. Staple foods, such as bread, have seen a 25% price hike just since the start of the year.
The impact is palpable as the community prepares for the Eid festival, known locally as Bairam, a time traditionally filled with feasts and joy. This year, however, the mood is soured by exorbitant food prices, prompting headlines like “Barbecue remains a dream during Bairam” and “Baklava is for the price of gold this Bairam.”
Currency Devaluation and Economic Freefall
The Turkish Cypriot economy’s freefall is largely attributed to the devaluation of the Turkish lira, which has plummeted in value due to Turkey’s unorthodox interest-rate-cutting policies under President Recep Tayyip Erdogan. As the lira lost approximately 40% of its value last year, and an additional 9% this year, it has had a ripple effect on the economy of Northern Cyprus. With the Turkish lira as their official currency, Turkish Cypriots have found themselves in a precarious position as the economy is heavily reliant on imports, which are often priced in foreign currencies.
Turkey’s efforts to curb inflation have seen the central bank raise the key interest rate to 50%, a move that reflects the severity of the situation. However, the predictions are not optimistic, with expectations that inflation could soar towards 80% by summertime.
Dependency on Imports and the Effect on Daily Life
The dependency on imports has exacerbated the economic woes of Turkish Cypriots. Import costs, coupled with a convoluted public administration, have added to the financial strain. The significant presence of foreign nationals has further complicated matters, as sectors have begun to adjust prices based on foreigners’ higher purchasing power. In a normal economy, foreign currency inflows would boost the local currency’s value. However, the Turkish Lira’s value remains low due to it being pegged to the Turkish economy, which is also under duress.
Noted economist and Turkish Cypriot professor, Engin Kara, has emphasized the role of uncertain sources of money inflow in exacerbating inflation. He warns of a future where a substantial segment of the economy may be driven by such funds.
The Human Cost of Economic Turmoil
At the heart of this crisis are the Turkish Cypriots, whose standard of living has taken a severe hit. With diminished purchasing power, many families find themselves teetering at the hunger threshold. The Cyprus Turkish Civil Servants Union (KTAMS) has calculated that a family of four on minimum wage is barely making ends meet. The hunger threshold for such a family stood at 23,644 Turkish Lira (approximately €687) at March’s end, with the minimum wage only slightly higher at 24,000 Turkish Lira (about €697).
The crisis has also led to skyrocketing debts. According to the Turkish Cypriot central bank, total borrowing from banks surged by 61% at the end of 2023 compared to the previous year, reaching 87 billion Turkish Lira (around €2.5 billion). The rising cost of living and doing business has seen a drastic increase in the closure of small food and beverage businesses, which cannot sustain the escalating costs. This has given rise to a sense of hopelessness, as captured by the association of restaurant owners’ sentiment: “We are just rowing the boat in vain. We are not getting anywhere.”
The economic downturn in Northern Cyprus serves as a stark reminder of the vulnerability of economies tied to larger neighbors and the profound impacts of policy decisions on everyday lives.
How severe is the current economic crisis in Turkish Cypriot history?
The current economic crisis in Turkish Cypriot history is severe, with soaring inflation rates of 94.5% leading to a steep cost-of-living surge. The devaluation of the Turkish lira, heavy reliance on imports, and foreign currency issues have left the community struggling amidst diminished purchasing power, marking a grim chapter in Northern Cyprus.
What factors have contributed to the economic crisis in Northern Cyprus?
The economic crisis in Northern Cyprus has been fueled by the devaluation of the Turkish lira, reliance on imports, and foreign currency issues. The plummeting value of the lira, coupled with high inflation rates, has led to diminished purchasing power for Turkish Cypriots. The economy’s heavy reliance on imports priced in foreign currencies has further exacerbated the situation.
How has the economic crisis impacted daily life for Turkish Cypriots?
The economic crisis has had a significant impact on the daily lives of Turkish Cypriots. With soaring inflation and a cost-of-living surge, families are struggling to make ends meet. Many are facing financial strain, with some teetering at the hunger threshold due to diminished purchasing power. Businesses, especially small food and beverage establishments, are closing due to escalating costs, leading to a sense of hopelessness among entrepreneurs.
What measures are being taken to address the economic crisis in Northern Cyprus?
To address the economic crisis in Northern Cyprus, the Turkish central bank has raised the key interest rate to 50% in an effort to curb inflation. However, the predictions remain grim, with expectations that inflation could rise even further in the coming months. Economists are warning of uncertain sources of money inflow exacerbating inflation and the ongoing challenges of a heavily import-dependent economy.
