Just how sick was the 'Sick man of Europe?'. Despite 1914 appearances, economic collapse was a long way off. The Ottoman Empire outlasted the A-H, Russian and German Empires, finally being abolished in November 1922. The various minorities within the Ottoman Empire typically wanted autonomy and not independence. Even beyond the empire, Egypt and Cyprus were still paying tribute to the Sultan in 1914.
In 1914, the Ottoman Empire comprised about 15m Turks, 10m Arabs, 1.7m Greeks and 1.1m Armenians. This multi-ethnic empire's population of 28 million was a religious mix of 80% Muslim to 20% non-Muslim. Three quarters of the population lived in the Anatolian core. The GDP of the empire was about £ 233m pounds. National debt stood at £140m pounds or about 60% GDP (half held by the French) but this can't have been too much risk as bond rates were at 0.78% and this is a tenth of the rates on Greek bonds.
Turkey's problem was the inefficiency of its tax collection. However, the Young Turk regime would have little problem in squeezing the non-Muslim population through the Jizya (non-Muslim tax) to raise revenue and encourage them to leave. Ottoman taxes were only raising half per capita the amount that the Greeks and Serbs and other Balkan countries were able to manage.
Prior to the war, it was widely recognised that the Ottomans needed to reform and needed a period of peace to enact the necessary reforms. However, external pressures included the Russians arming both the Armenians and the Kurds where by they were attacking eachother and developing a pretext for the Russians to move in and 'protect' the Christians. The Arabs were also beginning to court English and French aid to ensure a greater say in Ottoman politics, something the CUP were trying to soothe with pan-Islamic policies. The German Ambassador to the Porte was advising no external adventures, no entangling alliances and no joining the Central Powers nor the Entente.
The Turkish Lira had an exchange rate close to the British Pound, 1.1:1 (£ 1 bought 0.9 TL). Tax revenue for 1913-14 was 29.4 million lira amounting to about 12% of GDP. Western Turkey had only 60 businesses of over 100 staff, 60 over 100 staff and two thirds of collected tax was from the agricultural sector. Tax collection was inefficient and collected about half the rates per capita of the Balkan powers. There was also considerable waste. In 1910, the Sultan was drawing £ 7m annually but £ 4m of this was for his estate. This should have been about £ 500,000 so £ 3.5m was frittered away on bribes, graft, palaces, favors, guards and secret police. The Empire's literacy rate was 7% for the Latin alphabet but 40% for the Arabic alphabet placing the Ottoman Empire on par with Spain or Italy.
Turks were forbidden to levee consumption taxes due the terms of the Capitulations (treaties) with foreign powers. France, Britain and Germany blocked a Russian request for a seat on the Ottoman Public Debt Administration (OPDA), the vehicle for collecting taxes in Turkey to pay down debt owed to western Europeans. Russia's goal was to be able to apply economic pressure to the Porte which the three other powers objected to. The OPDA was also a mechanism to bring in foreign investment such as railway building projects like the Berlin Baghdad railway.
Although it was a great detriment to the sovereignty of the Empire, which had surrendered its rights over revenues and accepted unconditional control to foreigners, the establishment of the OPDA proved to be successful in the sense that it restored the Ottoman creditworthiness. From 1886 to 1914, the government could secure another 23 loans, totaling £150 million at an average rate of issue of over 85 percent.
Despite the fact that the Ottoman state managed to generate a budget surplus and to orderly pay its outstanding debt in the last two decades of the 19th century, rising military expenditures, especially after 1908, began to create serious problems again. Deficits appeared again and they had to be financed through further borrowing.
The 1914-15 budged was forecast at 34m lira. Of this, 6m was for the Army of 36 Infantry Divisions, 2m lira for the Gendarmerie and 1.3m lira for the 8000 man Navy. There was only 20m lira in the treasury and the extra 14m was to be added to debt. Efforts to abrogate this debt after the war was declared was what prompted the resignation of the Finance Minister in November 1914. 10m-11m lira was the long term trend in Ottoman defense spending and at about 4.7% of GDP, this is quite high. The Army drew 13.3m lira in 1910 as reforms and reequipping were underway. Defense spending peaked at 24m lira at the end of the Balkan wars and 10% of GDP when the defense burden was at about 45% of government spending but this is typical for countries at war. However, this is including significant expenditure for ship building with orders for 2 Battleships, 2 Cruisers and a number of destroyers and submarines. In April, the Ottomans had secured a French loan for £36m that had cleared short term loans and stabilised the financial situation however the bulk of the loan was not due until later in 1914.
What killed the Sick Man?
The war cost 6 times more than expected at about 3m lira per month. Part of the terms for the August 1914 Turko-German Alliance was a 5m lira loan (100m gold marks) at 6% interest from the Germans which was supplied in October 1914. Even this wasn't enough for the Turks to declare war and Souchon took it apon himself to provoke the Russians, with tacit approval of the War Minister, by having the navy attack the Russians at the end of the month to cement the alliance. The economic measures being imposed saw the resignation of the Finance Minister on November 2nd 1914. A further 80m gold marks were supplied in April 1915 by which stage the Turks had also run up 150m gold marks in credit with German arms manufacturers. In addition to money printing (qualitative easing) and 50m lira worth of requisitions, the Ottomans also borrowed a total of 235m lira from Germany (about 4 billion gold marks). The resilience of Turks was quite impressive. For GB the war doubled prices, France they tripled and Germany quadrupled before collapse. Turkish prices went up 18 fold. By 1918 GDP had declined 40% and the cost of living had risen by 2000% since 1914, impoverishing anyone on a fixed salary. Even if Germany had won the war, Turkey would have been reduced to economic servitude to pay back these massive debts.