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Fiscal Risks Emanate from FX-Linked Deposit Scheme

  • TRY weakness and rise in yields brings forward the spectre of Erdogan’s FX-linked deposit scheme having negative fiscal impact on Turkey with government backstopping FX-induced losses on deposits
  • Reminder: If lira depreciation exceeds TRY interest rate, the Treasury will give the difference to the depositor in lira. There will be no withholding tax on these deposits.
  • These measures – especially the support provided to TRY deposit holders – could potentially create a significant burden on the Treasury.
  • JPM’s back-of-the-envelope calculation showed that any extra 12% lira depreciation over the lira interest rate could increase the budget deficit by around 1% of GDP over a six month horizon.
MNI London Bureau | +44 020-3983-7894 |
MNI London Bureau | +44 020-3983-7894 |

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