( CNN ) -- Turkey 's Prime Minister Recep Tayyip Erdogan is facing a local election this weekend , the biggest test of his popularity since becoming Prime Minister in 2003 . The polls are seen as a referendum on his popularity before the country 's first direct presidential election this summer , in which Erdogan is widely expected to run . But things do n't seem to be going smoothly . Just months after the damaging Gezi Park protests in Istanbul , Erdogan 's government is now facing a wide-ranging anti-corruption probe . And to add to the misery , Turkey 's economy , once hailed as a miracle , is slowing down , its currency is hovering around record lows against the dollar , and some of its firms are facing huge foreign debts . How did it get into this mess ? Many developed countries struggled with growth in the aftermath of the global financial crisis . Not so Turkey , which grew substantially over the last decade . Erdogan 's government was praised for its ability to attract foreign investors from Europe and emerging markets such as Russia and China . The rapid economic growth was largely fueled by cheap credit pouring into the country . As the crisis hit developed economies , investors turned to emerging markets which promised higher returns than depressed Western markets . For years , Turkey had enjoyed a foreign-funded construction boom . House prices had soared more than 50 % since the end of 2009 and both the country 's GDP and per capita income had increased threefold since 2003 . But the party ended with the U.S. Federal Reserve announcing a scale-back in its stimulus program last summer . Suddenly , there was less cash available to invest . With more security in the U.S. economy , investors started pulling their money from the emerging markets . Turkey 's growth slowed to just above 2 % and inflation rose to 7.4 % in 2013 , well above the 5 % target . The country 's currency , the Lira , slumped further in January , which forced Turkey 's central bank to adopt a radical approach and almost double interest rates from 7.7 % to 12 % -- a clear indication of the bank 's determination to prevent foreign capital outflows . But for voters , this may not be good news . Higher interest rates are likely to slow down Turkey 's economic growth . And as cash becomes less available and borrowing becomes more expensive , producers and business owners are likely to pass their increased costs to consumers , who will in turn see prices going up . Erdogan is aware of this and strongly opposed the bank 's move to raise interest rates . He argued it would hurt Turkey 's growth and blamed the Lira 's recent tumble on the opposition and an `` interest rates lobby , '' saying it was the result of a conspiracy against him and his government . And while Turkey 's $ 800 billion economy remains among the 20 biggest in the world , the IMF has warned it is not built on a sustainable model and remains too vulnerable to dangers outside its borders . Add to this another grim statistic : the country 's poverty . According to the Organisation for Economic Co-operation and Development ( OECD ) , one in five Turks live below the relative poverty line -- meaning their income is less than half of the country 's median . That is one of the highest figures among developed countries , with only Mexico and Israel lagging behind . Turkey 's strategic position means the country is the bridge between Asia and Europe . Its membership of NATO and candidacy to join the European Union reflect its importance . But the current unrest and uncertainty has already cost the country millions -- its stock market lost a third of its value last year alone . Foreign investors have been watching Erdogan 's steps closely and to them , the result of this weekend 's local election could be an indication of where the country 's economy moves next . Read more : Turkey 's political crisis undermining democracy . Read more : Is instability the 'new normal ' for Turkey ? Turkey : From a bridge to an island in the Mideast . Read more : Worst is yet to come for Fragile Five .
Turkey 's economy , once hailed as a miracle , is slowing down and its currency is talking a beating . The country 's central bank doubled the interest rates to prevent foreign capital outflows . The IMF has warned Turkish economy is not sustainable and remains vulnerable to external dangers .