Turkey’s current account deficit rose to USD 65bn last year from USD 48.5bn at the end of 2012, data of the Central Bank showed on Thursday. The current account deficit excluding non-monetary gold decreased by USD 983mn to USD 53.22bn, the Central Bank said. Last year’s USD 65bn deficit, -running at around 7.9% of GDP, based on government’s GDP estimate of USD 823bn- is the second largest figure on record after the CA shortfall of USD 75bn in 2011. The government had expected a CA deficit of USD 58.8bn or 7.1% of GDP in 2013.

The main driver was the foreign trade deficit, which increased 22% y/y to USD 79.8bn, while USD 9.5bn net income outflows also contributed.

FDI inflows, which were USD 9.15bn in the previous year, stood at USD 9.58bn at the end of 2013, financing only 15% of the CA shortfall, underlining poor quality of CA finance. Portfolio inflows fell to USD 23.74bn from USD 40.79bn. As these figure show, Turkey heavily relies on hot money to finance its CA shortfall. Inflows into Turkish equities were only USD 841mn last year, comparing unfavourably with an inflow of USD 6.27bn. Inflows into government debt securities dropped sharply in 2013 to USD 4.13bn from USD 16.84bn a year earlier. As regards to banks’ bond issues in international markets, they decreased to USD 8.07bn last year from USD 8.63bn in 2012 while other sectors raised USD 3.45bn versus USD 1.23bn. Banks borrowed USD 20.98bn from abroad last year which is significantly higher than the previous year’s USD 5.16bn. Tourism revenues, one of the main sources of hard currency, increased to USD 23.18bn from USD 21.25bn. There was an inflow of USD 3.8bn through net error & emission last year, up from the previous year’s inflow of USD 1.06bn.

In December alone, Turkey’s CA deficit jumped 71% y/y to USD 8.32bn which was also well above the market consensus forecast of USD 7.6bn. The deficit was USD 4.1bn in November 2013. Net FDI inflows increased to USD 1.49bn from USD 607mn in November. There was an outflow of USD 246mn from Turkish equities in the month while foreign investors sold USD 901mn worth of government debt securities, marking the third consecutive month of outflow.

The CA deficit will improve this year due to a weaker TRY, moderate domestic demand, reviving external demand, and decline in gold imports, finance minister Mehmet Simsek said earlier this week. The government expects the CA deficit to be USD 55.5bn or 6.4% of GDP this year. Indeed, as an early sign of anticipated improvement in CA deficit, Turkey’s gold imports declined by 81% m/m and 47% y/y to 6 tonnes in January.