Abstract:

External debt is one of the most important problems for underdeveloped countries and emerging markets like Turkey. External debt and its refinancing remain the main challenges for Turkey over the last decades. High interest rates, low savings, unstable exchange rates, persistent budget deficits and repeated and very large current account deficits can be regarded as the main macroeconomic determinants of external debt accumulation.   The debt burden constrains investments and capital accumulation and affects the economic growth in the negative direction. Therefore, the most basic elements necessary for achieving macroeconomic stability are debt sustainability and the debt burden to be reduced to reasonable levels and kept at these levels. From 2008 to 2012, during the global great recession cycle, the Turkish economy has accumulated net extra external debt amounting to USD 55.8 billion in total most of which is characterized by short term structure. This period with high growth rates can be described as debt-led growth period. But private, household and corporate savings rates which should be the main source of investment and growth are too low, reducing growth potential and generating external imbalances.