Turkish commercial borrowing surges due to working capital needs

Borrowing by Turkish businesses is increasing by 45.8 percent annually, the highest level in almost two years, due to growing working capital needs, the Dünya newspaper reported on Wednesday.

Companies are using most of the money to meet their day-to-day expenses, rather than to invest, Dünya said citing unidentified bankers.

Producer price inflation in Turkey surged to an annual 115 percent in March, the highest level since the 1990’s, after the price of intermediate goods, energy and electricity jumped. The consumer price inflation rate rose to 61.1 percent, the most in two decades.

Turkish companies are coming face to face with rising input costs and wage pressures but cannot fully pass on the additional expenses to consumers, many of whom are struggling to make ends meet. The price of goods and services such as basic food stuffs, imported electronics and cars, electricity, natural gas and rent has surged.

Manufacturers are facing a deteriorating business environment due to fragile demand and inflationary pressures, exacerbated by the war in Ukraine, the Istanbul Chamber of Industry and S&P Global reported on April 1 in their monthly Turkey PMI Manufacturing Index for March. The index fell to 49.4 from 50.4 in February.

A series of rate cuts by the central bank late last year mean companies can currently borrow at an average annual interest rate of 20.95 percent, according to central bank data. That is less than a fifth of producer price inflation. 

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