Massive earthquakes in Türkiye will add billions of dollars of spending to Ankara's budget and cut economic growth by up 2 percentage points this year, officials and economists said, as the government reels from massive destruction in the aftermath of the catastrophe.
Over 14,014 people were confirmed to have been killed and 63,794 others injured in Türkiye by earthquakes that struck on Monday, leaving a trail of destruction across the region.
Thousands of buildings, including homes and hospitals, roads, pipelines and other infrastructure, have sustained heavy damage in the area, where some 13.4 million people used to live.
While officials say the extent of the destruction is not yet clear, they believe rebuilding will stretch Türkiye's budget.
"There will be billions of dollars of damage," one senior official told Reuters, adding there would need to be a rapid reconstruction of infrastructure, houses and factories.
Meanwhile, ratings agency Fitch also said yesterday that the earthquake that has devastated Türkiye and Syria could cause economic losses exceeding $4 billion.
"Economic losses are hard to estimate as the situation is evolving, but they appear likely to exceed" $2 billion and could reach $4 billion "or more," Fitch Ratings said.
Insured losses will be much lower, possibly around $1 billion, due to low insurance coverage in the area, it added.
Türkiye has been beset for years by soaring inflation and currency crashes while the government put into effect a new economic model, which yielded desired results.
The country’s Treasury and Finance Minister Nureddin Nebati said back in January that the government would continue to pursue policies that prioritize economic growth and jobs in 2023, a year he said would see a further drop in inflation and an increase in household income.
He promised at the time a continuation of policies that prioritize investment, employment, production and exports in 2023, part of the economic model that the government introduced in late 2021 that aims at flipping Türkiye’s persistent trade deficits, a major component of the current account.
The model relies on targeted loans and low-interest rates and also aims at eventually helping reduce inflation, which hit a 24-year high in October but moderated over the last two months and is expected to decrease significantly this year.
Türkiye also has much lower debt levels than most countries but years of FX reserve depletion and erosion of the central bank have left their mark.
Earthquake damage is also expected to hit production in the affected region, which accounts for 9.3% of Türkiye’s gross domestic product (GDP).
Indicating the extent of the disruption, electricity use in Türkiye dropped 11% on Monday, compared to a week earlier, Energy Exchange Istanbul (EPIAS) data showed.
That disruption could hit economic growth this year.
Three economists calculated GDP growth could drop 0.6 to 2 percentage points under a scenario where production in the region drops 50%, which they said would take six to 12 months to recover.
The government is foreseeing a 5% growth in 2023.
Separately, a senior official said growth could be 1 or 2 percentage points below the targeted 5%.
"Some of the investment resources foreseen in the budget will need to be used for these areas," the official said.
The southeast region hit by the earthquake accounts for 8.5% of Türkiye’s exports and 6.7% of imports. But economists say the earthquakes are unlikely to affect Türkiye’s trade balance as both exports and imports are expected to drop.