Turkey’s private sector long-term foreign debt edged up 0.2% m/m to stand at $217.75bn as of end-November from $217.2bn at end-October, the central bank said on January 17. At end-2016, the level of debt had risen by 4% y/y to $202.9bn.

Turkey is heavily dependent on external loans to finance its large current account deficit. Debt-financed consumption is regarded as one of the main drivers of 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 may experience difficulties in meeting liabilities. 

Data from the central bank also showed that the private sector's short-term debt rose by 4% m/m to $18.8bn as of end-November. The short-term debt stock declined by 30% y/y to $14.35bn at end-2016.

The Turkish lira lost 0.07% d/d against the USD to trade at 3.8164 as of on January 17 while the benchmark BIST-100 was up 1.90% to 116,593.

Turkey's economic health, it is clear, is dangerously reliant on hot inflows of foreign external financing to enable growth. Even though the central bank upped borrowing costs by around 450 basis points in 2017, the TRY has continued to devalue.

The government expects the current account deficit to come in at 4.6% of GDP, or $39.2bn, in 2017. However, the markets expect a deficit of $45bn to be recorded for the full year.

Despite all the worries of imbalance, Turkey continues to finance its current account deficit via portfolio inflows. Turkish equities experienced a slight net inflow of $206mn in the week ending January 5. The total equities inflow in 2017 topped $3.34bn, in line with the scope of portfolio inflows into the emerging markets universe. Consequently, the Istanbul bourse experienced many all-time highs last year.

Turkish government debt securities, meanwhile, attracted a net inflow of $36mn in the first week of 2018. There was an overall inflow of $7.13bn into the debt securities in 2017.

The central bank’s total gross international reserves, including gold and FX reserves, rose to $111.5bn as of January 5 from $107.8bn at end-2017.