The foreign exchange liabilities of Turkey’s non-financial firms edged up by 0.89% m/m to $306.4bn at end-April from $303.6bn at end-March, while their assets increased by 3.57% m/m to $108.7bn from $104.9bn, central bank data showed on July 4.

Consequently, the net short FX position of the non-financial firms declined by 0.52% m/m to $197.7bn at end-April from $198.7bn at end-March.

Short FX positions leave companies vulnerable to currency fluctuations. The Turkish lira, which lost nearly 17% of its value against the dollar in 2016, has strengthened since April.

The USD/TRY rate was down 0.04% d/d to trade at 3.5553 as of 15:30 local time on July 4 while the benchmark BIST-100 index was up 0.56% to 101,084.

Non-financial companies’ FX liabilities hit as much as $304bn last year having only been $31.6bn in 2002, while their FX assets increased to $102bn from $25.1bn. The net short FX position rose by 8% y/y to $204.9bn at end-2016 from $189.3bn at end-2015.

Turkish non-financial companies’ short-term foreign exchange surplus rose by a sharp 36% m/m to $9.36bn in April, the central bank added.

The short-term FX surplus fell to $1.39bn at end-2016 from $5.27bn at end-2015.

Turkey is planning new measures to tackle the potential risk generated by foreign currency debt held by private companies, two people familiar with the matter told Bloomberg on June 19.

Plans include requiring non-financial companies with more than $15mn in foreign-currency debt to hedge their risk, while companies with smaller holdings would also face limits on how much foreign exchange credit they could receive from banks, the sources reportedly said. The government may also introduce higher provisioning for commercial banks’ FX lending to these companies, according to the news service.

“The outlook is clouded by heightened political uncertainty, security concerns, and the rising burden of foreign exchange-denominated debt caused by the lira depreciation,” the IMF warned Turkey in April.

Moody’s Investors Service on March 17 lowered Turkey’s rating outlook to negative from stable, citing “the continuing erosion of the country’s institutional strength, its weaker growth outlook, heightened pressure on public and external accounts and the increased risk of a credit shock”.

Moody’s also noted that “weaker growth is negatively impacting Turkey's key credit anchor - its healthy public finances and low government debt”.

Heavy dependence on external borrowing is a sharp reality in Turkey due to the country's chronic current account deficit. Debt-financed consumption was the prime feature of the remarkable economic growth achieved by Turkey during much of the past decade, while the private sector’s share in total external borrowing has been on the rise in recent years. 

Turkey’s gross external debt stock rose by 1.8% q/q and 0.6% y/y to $412bn by end-March. The country’s short-term external debt stock rose by 3% m/m to $105.3bn at end-April from $102.2bn at end-March. The Turkish private sector’s long-term foreign debt rose 0.93% m/m to stand at $205bn as of end-April from $203.1bn at end-March.