The research team at Standard Chartered explains that the referendum approves presidential system by a narrow margin amid a highly polarised society and the vote has been criticised by monitors; the outcome could exacerbate tensions with the EU.
“In a referendum on Sunday, Turkey voted by a thin 51.3% margin for constitutional amendments that will change the parliamentary democracy into a strong executive presidential regime. Critics have said this will erase the checks and balances necessary for the proper separation of powers. Multiple complaints have been lodged with the Supreme Electoral Council about voting irregularities.”
“Turkey’s relationship with Europe is at stake. The EU has said that it would look at the changes in light of the country’s obligations as an EU candidate and a Council of Europe member. Observers from the Organisation for Security and Co-operation in Europe (OSCE) delivered a harshly critical report on the conditions of the campaign, vote-counting procedures and the legal framework, which it deemed “inadequate for the holding of a genuinely democratic referendum”.”
“Now that political noise related to the referendum outcome has abated, the policy focus could shift to long-awaited structural reforms; the authorities had positioned the referendum as a pre-requisite for reforms, saying it would ensure stability. Developments since the referendum, namely the extension of the state of emergency, are likely to weigh further on the recovery in inbound tourism. To offset slower private consumption, we expect the government to continue to provide fiscal stimulus; government spending rose 20% y/y in the first two months of the year. We expect the central bank to keep liquidity conditions tight, and see potential for further rate hikes given our expectation of two more US Fed hikes this year.”