Economist warns: political crisis in Turkey could directly hit the TRNC economy

Economist E. Okandan said that a possible political crisis in Turkey could trigger serious economic consequences for the TRNC because of its economy’s close dependence on the Turkish lira.

According to Okandan, even if political events in Turkey do not directly affect the domestic system of governance, currency dependence makes the TRNC economy extremely vulnerable to external shocks. Any weakening of the Turkish lira, he stressed, is immediately reflected in inflation, the cost of imports and the population’s standard of living.

The economist noted that potential political upheaval in Turkey could intensify pressure on the foreign exchange market, cause inflation to rise and increase borrowing costs. He also pointed out that limited foreign currency reserves and possible interventions by the Central Bank of Turkey may prove insufficient for the long-term stabilization of the exchange rate.

Okandan paid particular attention to the risks for the TRNC’s public finances. According to him, the decline in the real value of revenues and social payments amid currency devaluation could increase budgetary pressure, even with a formal rise in tax revenues.

He also warned of possible consequences for the banking sector, including a liquidity shortage, higher interest rates and increased demand for foreign currency from depositors. This, in turn, could weaken confidence in the Turkish lira and hit households and businesses.

Separately, the economist noted risks of reduced investment activity in the real estate and tourism sectors, as well as a possible decline in external financial flows.

“The economy of Northern Cyprus has a structure that automatically imports political crises from Turkey,” Okandan stressed, adding that in conditions of instability the likelihood of stronger inflationary pressure and renewed discussions about alternative currency mechanisms increases.