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|
|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%|
|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||-|