In this Thursday, Jan. 5, 2017 photo, a shop owner holds cups of tea outside his shop in Istanbul's Grand Bazaar, one of Istanbul's main tourist attractions. (AP Photo/ Emrah Gurel)
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lira is buckling under the weight of a ballooning current-account deficit and double-digit inflation after its $851 billion gross domestic product expanded 7.4 percent last year, faster than any other major economy.Turkish companies have amassed a foreign debt load equivalent to about 40 percent of economic output. It's also reinforcing the perception among some investors that the economy is living off borrowed time before the next election.Cemil Ertem, a chief economic adviser to Erdogan, said on March 30 that Turkey's growth rate is sustainable and inflation should decelerate rapidly in the second half of the year.Interest RatesIn an effort to keep foreign capital coming, Turkey's central bank has raised interest rates by more than 400 basis points since the beginning of 2017, offering investors one of the juiciest nominal yields across emerging markets.The impact of the expansionary measures are still filtering through the economy, with inflation above 10 percent for eight straight months through March, more than double the central bank's target.Foreign FundsNet foreign direct investment fell to $8 billion in the 12 months through January, which means less than 20 percent of Turkey's deficit is funded by long-term investors, leaving local assets dependent on portfolio flows that fluctuate with global market sentiment.
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