Subscribe Free
in Defence / Features

Turkey’s Defence Budget – the fallout from high inflation and a weak lira

Posted 11 April 2018 · Add Comment

Fenella McGerty, principal analyst, defence budgets, Jane’s by IHS Markit gives her assessment of the current Turkish defence concerns


Turkish defence expenditure soared by 14% in real terms to reach $13 billion in 2018, however red flags in the form of double-digit inflation and continued weakness in the Turkish lira present real restrictions to future growth. Any significant increases made to the budget in the short term will be effectively wiped out in real terms and the purchasing power of the Turkish budget will continue to be eroded on international markets.
Over the last decade, high levels of inflation have resulted in incredibly volatile movements in the Turkish defence budget, with surges in spending in one year often followed by real cuts in the next. Meanwhile, the low value of the lira against Western currencies will continue to act as a barrier for international investment and further drive Turkey towards the goal of total self-sufficiency in defence production by 2023.
According to Jane’s Defence Budgets, Turkey’s 2018 defence budget of USD13 billion places it 20th largest defence budget globally and the 8th largest in NATO behind the US, UK, France, Germany, Italy, Canada and Spain. In dollar terms, if the weakness of the lira persists, the Turkish defence budget will begin to fall out of the top 20 spenders in the early 2020s.
Economic outlook
According to IHS Markit, double-digit inflation rates seen in 2017 will persist throughout 2018 with consumer price index (CPI) inflation averaging 10% over the year. As the government targets 5% real GDP (Gross Domestic Product) growth this year, pressure from President Recep Tayyip Erdogan on the Central Bank of Turkey to avoid increasing interest rates has intensified. This in turn is fueling further depreciation of the lira which cyclically drives up inflation by increasing energy import and foreign debt repayment costs.
The lira fell to TRY4.07 against the dollar in April 2018 compared to an average rate of TRY2.2 to the dollar in 2013.
Without a significant tightening in monetary policy, IHS Markit projects that the lira will remain subdued for the next decade - this will strain the affordability of defence programmes Turkey pursues with the West.
As the depreciation against the Russian ruble has been less severe, economic conditions may encourage further thawing of relations between the two countries.
Self-sufficiency aims
The importance of the depreciation of the lira in terms of domestic defence spending has been somewhat lessened by the continued efforts of the Undersecretariat for Defence Industries (SSM) to increase Turkish self-sufficiency.
Turkey is looking to achieve full self-sufficiency by 2023 and has already established strong domestic production capabilities in the wheeled military land systems domain as well as small arms and radar systems. Naval shipbuilding capabilities are credible, while C4ISR and aerospace competencies continue to develop with large-scale systems integrators and SMEs developing subsystems play a key role in any of these domestic capabilities.
Since the 1990s, Turkey has made significant headway in the pursuit of self-sufficiency with successive development plans geared towards enhancing operations within the domestic defence industry. However, production remains heavily reliant on designs, capabilities and technologies of international contractors with offset accords forming a significant proportion of defence industrial activity.
Defence investment drivers
From a security point of view, defence spending increases in Turkey continue to be driven by Turkey’s geographic position and potential flashpoints that include ongoing instability in neighbouring Syria and the encroachment of Islamic State.
Turkey also has commitments stemming from NATO membership Several major programmes are also coming into the timeframe including the procurement of 100 Lockheed Martin F-35 Lightning II multirole fighter aircraft as replacement to F-16C/D under the Turkish Future Combat Aircraft (FCA) programme. Beyond the FCA programme, equipment such as electronic warfare jammers, additional AEW&C and C4ISR aircraft, air defence assets and radars will likely be given priority in the near-term as Turkey looks with increasing unease along its borders.
Defence procurement is used by Turkey as a tool for industrial development and while immediate needs may be fulfilled as outright purchases, longer term acquisitions are aimed at ensuring that the government meets its target of defence self-sufficiency by 2023.

 

* required field

Post a comment

Other Stories
Advertisement
Latest News

Nouvelair pace of change accelerates

Nouvelair, a Tunisian private company operating charter and scheduled flights, will celebrate its 30th anniversary in 2019. Deputy general manager, Chokri Zarrad, shared his ambition for the company with Vincent Chappard.

World Aviation Safety Summit to establish dangerous goods handling strategies

The 6th Annual World Aviation Safety Summit (WASS) will provide a focus on approaches for handling dangerous goods, organizers of the event revealed today. Hosted by the Dubai Civil Aviation Authority, WASS 2018 is set to return for its

Why the future of air travel must be digital

How will the aviation industry anticipate and respond to growing numbers of customers with changing habits and expectations? Mohammed Adnane Retmi, head of Orange Applications for Business indirect, Middle East, Africa and Russia

Apollo 15 command module pilot, Col. Al Worden, to attend Bahrain Airshow

In conjunction with the Bahrain International Airshow 2018, U.S. astronaut/scientist/inventor will address industry, military and student leaders, encouraging multilateral partnership to “break through barriers”.

Marrakech gears up for the sixth edition of the Marrakech Air Show

The sixth edition of the Marrakech Air Show, the largest African civil and military aviation event, will be held in Marrakesh between 24th and 27th of October at the Royal Air Force military base in Marrakesh.

Salalah International Airport welcomes NordWind Airlines first direct charter flight from Russia

Salalah International Airport has welcomed its first direct charter flight from Moscow Russia, coinciding with the beginning of the winter season in Dhofar (Monsoon season); starting from October to April of each year.

TAA SK0902311218
See us at
Aviation Africa BT0607280219MEBAA BT1004121218GATM BT1004061118MarrakechAirshow BT2507241018BIAS BT271017161118AviationShowBT1110141118MAPS18_BT1207131118AIME19BTA3005120219