Foreign investors are fleeing the Turkish local currency bond market, exacerbating Turkey's economic issues, the Wall Street Journal reported.

In six months, investment funds have withdrawn over $ 7 billion from the Turkish local currency bond market, data from the Turkish central bank added.

According to the publication, the share of non-residents in Turkish government bonds fell to about 5 percent. Bonds have become less attractive to investors as the central bank cut interest rates to below inflation this year, bringing the debt's real yields below zero.

According to Viktor Szabo, investment director at Aberdeen Standard Investments, Turkey is becoming irrelevant for fixed income investors.

Turkey's economy is just beginning to recover from the 2018 recession, when the COVID-19 emerged, causing a shock to the economy.

Turkey's central bank has spent billions of dollars in foreign exchange reserves and borrowed foreign exchange from local banks to buy the lira to stem the currency's decline.

Despite these efforts, the currency fell to a record low against the US dollar in May before recovering slightly.

With the fall of the lira this year, Turkey's foreign borrowing costs have risen, frightening foreign investors. Nobody wants to buy long-term bonds in Turkey anymore, Jan Dehn, Head of Research at Ashmore Group told WSJ.

Investors are also increasingly concerned about how borrowers will pay off their debts, as Turkish banks disbursed loans to households at a record pace in the first half of the year. The government guarantees debts to small and medium-sized businesses to maintain credit flow.

Turkey's dependence on its reserves and borrowed currencies has led investors to speculate that Ankara is heading for a balance of payments crisis, which will deprive Turkey of the ability to pay for necessary imports or make payments on external debt.

In this case, Turkey will be forced to allow the currency to weaken and raise interest rates, slowing economic growth.