Turkish Cypriot Community : Coping with the Turkish Lira Depreciation Shock
The Turkish lira (TL) has depreciated to an extent not seen since the 2001 crisis, reaching its lowest level in September 2018 (TL 6.37/US 1.00 dollar), losing 66 percent of its value against the US dollar since January 2018. This Regular Economic...
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| Format: | Report |
| Language: | English |
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World Bank, Washington, DC
2020
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| Online Access: | http://documents.worldbank.org/curated/en/637121600844818359/Turkish-Cypriot-Community-Coping-with-the-Turkish-Lira-Depreciation-Shock-A-Macroeconomic-Monitoring-Note http://hdl.handle.net/10986/34531 |
| Summary: | The Turkish lira (TL) has depreciated to
an extent not seen since the 2001 crisis, reaching its
lowest level in September 2018 (TL 6.37/US 1.00 dollar),
losing 66 percent of its value against the US dollar since
January 2018. This Regular Economic Report focuses on the
likely impact of the depreciation on the Turkish Cypriot
(TC) economy. Although the magnitude of the 2001
depreciation eventually turned out to be double the current
depreciation, the reaction of the economy in 2001 offers
useful insights into understanding the situation today. The
report also discusses the financial situation of Local
Communities Bodies (LCBs), whose budgets are highly
dependent on transfers from the central administration. With
the TL depreciation, fiscal pressures will arise at the
central level, as with the local level, where the quality of
service delivery is likely to be eroded as a result. To
encourage spending reductions, the central administration
could toughen its approach and reject budgets based on
implausible revenue projections. It could encourage wage
bill reductions by enforcing current limits on staffing and
overall wage spending. It could also assist LCBs to improve
the efficiency of services, such as water supply and solid
waste management, by encouraging joint service arrangements
among small LCBs. But much of the power to improve the
situation lies with the LCBs themselves, as they have a
considerable degree of fiscal autonomy despite the limits
imposed by central regulations. They can increase basic tax
rates up to the rate of inflation and impose higher
valuations; and are also free to increase water tariffs
(subject only to pro forma review) and the rate of various
service charges within a range set by central regulation.
Although their ability to reduce the number of civil
servants is limited, they have considerable control over the
numbers and wages of contracted staff and front-line service
providers. The first section of this report discusses recent
economic developments in the TCc with a focus on the likely
economic impact of the TL depreciation. The second section
assesses the state of the LCBs’. |
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