The unconsolidated debt of the Istanbul municipality—the mayorship of which was won by the opposition in the late June ‘revote’ to the humiliation of the Erdogan administration—has reportedly more than tripled since 2014 according to the conclusions of an internal audit.
New mayor Ekrem Imamoglu, who must tackle what the Republican People’s Party (CHP) describes as a legacy of waste and runaway debt that built up under the long Istanbul rule of the Justice and Development Party (AKP), expects the municipality’s outstanding liabilities to grow another 30% this year to as much as Turkish lira (TRY) 35bn ($6.1bn), Bloomberg reported. Fitch Ratings, meanwhile, has observed that high TRY volatility means the commercial and cultural capital is vulnerable to its unhedged foreign debt, which accounts for 84% of the total debt.
“Although the debt figure is nominally small for a city the size of Istanbul [which accounts for around a third of Turkish GDP], repaying this debt without creating additional funds looks very difficult,” Mert Yildiz, co-founder of Istanbul-based political research firm Foresight, was quoted as saying, adding: “And there seems to be no additional funds for Imamoglu at the moment.”
Istanbul, a city of 16mn, is struggling amid the recession triggered by last year’s lira crisis and in terms of growth Fitch expects it to fare worse than the national economy this year.
“Aggressive frontloading” of capital expenditure before this year’s elections was to blame for “a significant increase in borrowing and deterioration of spending discipline”, Fitch analysts including Nilay Akyildiz said in a report.
The internal audit shows the municipality’s debt includes TRY11.3bn borrowed from international banks and TRY3.3bn from local lenders, with another TRY3.8bn owed to city subsidiaries. Istanbul owes 2 billion lira, including interest, to its unit Igdas, the operator of the city’s gas grid, according to the report.
The European Investment Bank, or EIB, is a top creditor to Istanbul with a total of $1.1bn, according to data compiled by Bloomberg. Other institutions that lent to the city in the past include the European Bank for Reconstruction and Development (EBRD), the World Bank, ABN Amro Bank and Societe Generale.
Turkey’s lack of a municipal bond market is one limit on the city’s options.
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