Turkey’s private sector long-term foreign debt rose 0.93% m/m to stand at $205bn as of end-April from $203.1bn at end-March, the central bank said on June 14. At end-2016, the level of debt had risen by 4% y/y to $202.7bn.
Turkey is heavily dependent on external loans to finance its large current account deficit. Debt-financed consumption is regarded as having served as the main driver in the remarkable economic growth experienced by the country in much of the past decade. However, when it comes to the economic horizon, political concerns are placing sustained pressure on the outlook, creating a more challenging environment for the country’s private firms.
Turkey’s corporate sector, especially when it comes to tourism enterprises, may experience difficulties in meeting liabilities.
Non-financial private companies’ long-term debt stock rose by a stronger 1.22% m/m to $98.2bn at the end of April while private banks’ debt rose 0.80% m/m to $89.2bn. Private banks’ loan debt rose 0.65% m/m to $63.1bn in April.
Non-financial private firms’ long-term debt expanded by 8% y/y to stand at $96.5bn at the end of 2016 while private banks’ debt rose 2% y/y to $87.6bn. Private lenders’ loan debt contracted 0.75% to $63.3bn at end-2016.
Data from the central bank also showed that the private sector's short-term debt rose 2.45% m/m to $15.6bn as of end-April. The short-term debt stock declined by 30% y/y to $14.3bn at end-2016.
“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”.
The rating agency also noted that “weaker growth is negatively impacting Turkey's key credit anchor - its healthy public finances and low government debt”.