Turkey’s current financial crisis has been a long time coming. The country is being throttled by its heavy reliance on external financing – worse today than it was five years ago amid gradual tightening of global liquidity and domestic policy bureaucracies that has caused a diplomatic dispute with the United States and pressured Turkey’s currency. The lira has lost more than 30% of its value against the dollar since the start of 2018. Its stock market has fallen by over 20% YTD and its inflation hit 15.9% in July – three times more than its central bank’s target.
These issues seem to be affecting other Emerging Markets (EM) as currencies such as the Mexican peso, Indian rupee, Russian ruble and South African rand have all weakened in the aftermath of the crisis. Fortunately, Nigeria’s financial and trade linkages with Turkey is limited; export exposure stands at just 0.9%. Furthermore, most of the EM countries that have witnessed offshore sell-off following Turkey’s ordeal are countries with poor financial positions. Nigeria on the other hand, has a current account surplus of $4.5bn (as at Q1-18), with her external debt very well in check. Hence, Nigeria may not suffer much “guilt by association” other than the covariance of the current risk-off sentiment for EM assets, and political uncertainties.