Turkey’s current account gap widens 18% y/y in line with expectations

Turkey’s current account gap widens 18% y/y in line with expectations
By bne IntelliNews June 12, 2017

Turkey’s current account deficit expanded by 18% y/y to $3.62bn in April after contracting by a revised 20% y/y in March, the central bank announced on June 12.

Market analysts were expecting that exact figure for the deficit, according to a Reuters poll. The poll also forecast an annual deficit of $37bn for the whole year.

Following the release of the latest data, the Turkish lira was trading at 3.5237 per dollar, down 0.38% d/d, as of 11:15 on June 12. The main stock exchange index, the BIST-100, was up 0.45% to 99,389.

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.

The OECD projects Turkey’s current account deficit to increase to 4.8% of GDP in 2017 from 3.8% in 2016.

Exports in April rose by 8% y/y to $12.6bn while imports were up 10% y/y to $15.5bn, leading to a foreign trade deficit of $2.92bn in the month, a 7% y/y rise.

Tourism revenues, which traditionally help the country plug its large current account deficit, were up 29% y/y to $689mn in April, financing 22% of the current account shortfall in the month.

Also on the financing side, net foreign direct investment (FDI) inflows declined by 2% y/y to $765mn, while net portfolio inflows contracted by 8% y/y to $3.09bn in April. There was an inflow of $307mn into Turkish equities in the month, while the domestic government debt securities market saw an inflow of $1.35bn. The government also raised $1.25bn via 6-year eurobonds on April 6.

The central bank reported an outflow of $3.87bn through net errors and omissions.

Turkey's persistent current account deficit and its high external financing necessarily constrain ratings because they make economic growth vulnerable to external refinancing risks, S&P Global Ratings warned last month 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 has proved the main driver of the country’s remarkable economic growth looking back over the past decade. But as the economic outlook is still suppressed by geopolitical risks, Turkey’s corporate sector, especially when it comes to tourism enterprises, may find it difficult to meet liabilities. 

Investors, meanwhile, expect the government to focus more on long-delayed reforms to address the country’s chronic current account deficit problem.

Turkey's foreign arrivals figure rose by 18% y/y to 2.07mn in April, representing the first annual growth recorded since July 2014. Tourism revenues 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.

The country's foreign trade deficit, the main driver behind Turkey’s chronic current account deficit problem, rose by 50% y/y to $7.65bn in May.