Economic output in Turkey is more than double that of Egypt with a similarly sized labour force but both have large external financing requirements as domestic savings fall short of investment needs, resulting in large, sustained current-account deficits. Both countries are also strategically important for Europe, notably in terms of their energy endowments.
Egypt and Turkey face tough policy trade-offs as the pandemic and energy crises have worsened long-standing macroeconomic imbalances, which are now in danger of further deterioration as external borrowing costs have risen and currencies fall against the dollar. Financing risks have intensified. Ten-year international bonds trade around 9% for Turkey and 18% for Egypt.
Turkey’s relative resilience is helped by its more diversified economy. However, the consequences of an…
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