Turkey’s one-year foreign debt repayment obligations up 1% m/m to $181bn at end-July

Turkey’s one-year foreign debt repayment obligations up 1% m/m to $181bn at end-July
By bne IntelliNews September 20, 2018

Turkey’s short-term external debt stock edged down by 1% m/m to $121bn as of end-July, the country's central bank said on September 20.

External debt maturing within one year or less regardless of the original maturity was up by 1% m/m. It stood at $181.3bn compared to $179.1bn at the end of June.

According to the figures, the public sector is on the hook for a total of $33.3bn in foreign debt (up from $32bn at end-June), including $29bn owed by public banks (up from $28bn a month ago), in the coming one-year period. The private sector, meanwhile, has obligations to pay $147.5bn (up from $146bn at end-June), including $74.1bn faced by private banks (up from $74bn) and $66.3bn by non-financial companies (up from $65bn).

The short-term external debt stock grew by 16% y/y to $118bn at the end of 2017 from $101.5bn at the end of 2016.

The dizzying descent of the Turkish lira (TRY) has hurt Turkish companies that have borrowed on the international markets as it has made it more costly in lira terms to repay debt.

Turkey is heavily dependent on external borrowing due to its chronic current account deficit. Debt-financed consumption has been 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.  

Turkey’s current account deficit widened by 42% y/y to $47.1bn in 2017, driven by rising gold imports and energy prices. However, there are forecasts that an upcoming recession could even turn it into a surplus.

Signs of major conglomerates struggling to repay their hard currency-denominated debts have set off alarm bells. Earlier this month, an assessment by Boston Consulting Group and Turkish business group Tusiad found that of a total of $95bn poured into the Turkish electricity market over the past 15 years by investors—largely funded by cheap credit—around $50bn was yet to be repaid.

The government continues to push forward palliative measures to relieve the currency crunch faced by companies. According to a new government decree, Turkish companies are no longer required to count foreign-currency losses when assessing whether or not to file for bankruptcy.