Turkey’s short-term external debt rises 2% m/m in May

Turkey’s short-term external debt rises 2% m/m in May
Turkey is heavily dependent on external borrowing due to its chronic current account deficit causing its short-term external debt stock to rise by 1.82% m/m to $104.3bn at the end of May
By bne IntelliNews July 18, 2017

Turkey’s short-term external debt stock rose by 1.82% m/m to $104.3bn at the end of May from a revised $102.4bn at the end of April, the country's central bank said on July 17.

Turkey is heavily dependent on external borrowing due to its chronic current account deficit. Debt-financed consumption was the prime feature of the country’s remarkable economic growth achieved during much of the past decade, while the private sector’s share in total external borrowing has been on the rise in recent years. 

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. 

The short-term debt of the public sector declined by a slight 0.02% m/m to $16.82bn at end-May, while the indebtedness of the private sector increased by 2.18% m/m to $87.4bn, although private banks’ short-term foreign borrowings having fallen 1% m/m to $41.6bn.

The short-term external debt stock on a remaining maturity basis, with the calculation based on the external debt maturing within one year or less regardless of the original maturity, was $166.6bn as of end-May. Some 52% of the total end-May debt was comprised of US dollars and 31% was comprised of euro debt, according to central bank data.

The short-term debt stock declined by 4% y/y to $98bn at end-2016 compared to the $102bn recorded at end-2015.

Turkey’s private sector long-term foreign debt rose 1.94% m/m to stand at $209bn as of end-May from $205bn at end-April. Turkey’s gross external debt stock rose by 1.8% q/q and 0.6% y/y to $412bn by end-March. The net short FX position of the non-financial firms declined by 0.52% m/m to $197.7bn at end-April from $198.7bn at end-March.

Turkey is planning new measures to tackle the potential risk generated by foreign currency debt held by private companies, unnamed Bloomberg sources said on June 19. Plans include requiring non-financial companies with more than $15mn in foreign-currency debt to hedge their risk, while companies with smaller holdings would also face limits on how much foreign exchange credit they could receive from banks, the sources reportedly said. The government may also introduce higher provisioning for commercial banks’ FX lending to these companies, according to the news service.

“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”.

Moody’s also noted that “weaker growth is negatively impacting Turkey's key credit anchor - its healthy public finances and low government debt”.

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