Turkey’s current account deficit contracts 18% y/y in March

Turkey’s current account deficit contracts 18% y/y in March
By bne IntelliNews May 11, 2017

Turkey’s current account deficit declined by 18% y/y to $3.06bn in March after expanding by 29% y/y in February, the central bank announced on May 11.

Markets expected a deficit of $3.16bn, according to a Reuters poll. The better than expected March result was mainly driven by rising exports.

Turkey’s current account deficit – traditionally the economy’s weak spot stemming from a heavy reliance on imports, especially energy – stood at $32.6bn in 2016, compared to the previous year’s $32.1bn. The government’s forecast for 2017 is $32bn, or 4.2% of GDP. The IMF expects the current account deficit to widen to 4.7% of GDP in 2017 from 3.8% in 2016.

Exports in March rose by 14% y/y to $15.4bn while imports were up 6% y/y to $18.2bn, leading to a foreign trade deficit of $2.84bn in the third month of 2017, a 22% y/y decline from a year ago.

Tourism revenues, which traditionally help the country plug its large current account deficit, were up 4% y/y to $749mn, financing 25% of the current account shortfall in March.

Also on the financing side, net foreign direct investment (FDI) inflows rose 37% y/y to $1.57bn, while net portfolio inflows declined by 20% y/y to $2.23bn in March. There was an outflow of $49mn from Turkish equities in the month, while the domestic government debt securities market saw an inflow of $1.02bn. The central bank also reported an outflow of $1.15bn through net errors and omissions.

Following the release of the latest data, the Turkish lira was trading at 3.5691 per dollar, down 0.50% d/d, as of 10:10 on May 11. The main stock exchange index, the BIST-100, was up 0.24% to a new historical high of 96,424.

Turkey's persistent current account deficit and its high external financing needs constrain ratings because they make economic growth vulnerable to external refinancing risks, S&P Global Ratings warned last week when it affirmed Turkey’s unsolicited 'BB/B' foreign currency long- and short-term sovereign credit ratings.

Turkey is heavily dependent on external loans to finance its large current account deficit. Debt-financed consumption proved the main driver of the country’s remarkable economic growth in the past decade. But as economic growth is heading for a slowdown and exports remain weak, Turkey’s corporate sector, especially when it comes to tourism firms, may find it difficult to meet liabilities. 

In the first quarter of 2017, a total of 3.8mn foreign tourists visited the country, a 6.43% y/y fall, according to tourism ministry data. Tourism revenues, as a result, plunged 17.1% y/y to stand at $3.37bn in Q1, according to the statistics office TUIK. Turkey is targeting $23.5bn in tourism revenues for 2017.

Turkey's Balance of Payments
($ mn) 2015 2016 y/y Q1-17 y/y
CURRENT ACCOUNT -32,118 -32,626 2% -8,296 5%
Goods, Services and Primary Income -33,548 -34,415 3% -8,758 4%
Goods and Services -23,906 -25,424 6% -6,603 1%
Foreign trade balance -48,114 -40,843 -15% -8,363 1%
Exports 151,970 150,178 -1% 40,052 10%
Imports 200,084 191,021 -5% 48,415 8%
CAPITAL ACCOUNT -21 23 - -16 -%
FINANCIAL ACCOUNT -21,941 -21,335 -3% -10,480 89%
Net FDI -12,455 -9,148 -27% -1,967 -1%
Net acquisition of financial assets 5,095 3,155 -38% 836 9%
Net incurrence of liabilities 17,550 12,303 -30% 2,803 2%
Net Portfolio Investment 15,719 -6,292 - -4,420 58%
Net acquisition of financial assets 6,129 1,511 -75% -180 -139%
Net incurrence of liabilities -9,590 7,803 - 4,240 30%
NET ERRORS AND OMISSIONS 10,198 11,268 10% -2,168 -
Source: tcmb