Turkey’s short-term external debt stock edged up by 0.3% m/m to $111.75bn at the end of November from $111.45bn at the end of October, the country's central bank said on January 18.
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 Turkish lira gained 0.35% d/d against the USD to trade at 3.8001 as of 12:30 local time on January 18 while the benchmark BIST-100 was up 0.17% to 116,790.
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 edged up 0.2% m/m to stand at $217.75bn as of end-November.
Turkey's economic health, it is clear, is dangerously reliant on hot inflows of foreign external financing to enable growth. 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.