Turkey’s current account deficit narrowing but only very slowly

Turkey posted a current account deficit of USD 3,081 million that is USD 919 mn lower than last year’s May.  Hence, the 12-month rolling deficit eased to USD 31.9 bn million from USD 32.8 bn in April and from USD 37.8 bn at 2020 YE.

The ongoing strength of domestic demand, though slowing down each quarter relatively, and the government’s plans to launch another domestic demand driven growth for 2022 all mean that Turkey’s CAD problem will prevail.  Hence the financing difficulties and accompanying fragilities on TL as well.    

Here are the details of TUrkey’s May balance of payments:

The net inflow of USD 939 mn in services item in contrast to last year’s USD 170 million net outflow has helped.  The tourism sector income of USD 665 mn account for the bulk of it.  There was also USD 151 million inflow in secondary income item in contrast to USD 38 million outflow observed last May.

The goods item recorded USD 2,869 million outflow that is USD 125 mn higher comparted to last May.

Gold and energy excluded current account balance was USD 774 million deficit though significantly below last year’s USD 2.1 bn deficit in May 2020.

Primary income outflow increased by USD 254 mn to USD 1.3 bn.

The financing side is better for May compared to previous months

Direct investment recorded net inflow of USD 304 mn as USD 222 mn stemmed from real estate purchases. Portfolio investment recorded a net inflow of USD 836 million.

The sub-items through liabilities show non-residents’ transactions on equity securities and government domestic debt securities recorded net purchases of USD 99 million and USD 349 million, respectively.  In terms of the bond issues in international capital markets, banks were net payers to a tune of USD 718 million as other sectors’ net purchases was USD 796 million.

Turkish banks’ currency and deposits within their foreign correspondent banks increased by USD 837 million. Non-resident banks’ deposit accounts held within domestic banks expanded by USD 933 million, with an increase of USD 840 million in foreign currency and USD 93 million in Turkish lira accounts.

Banks and General Government realized net repayments of USD 674 million and USD 19 million respectively, while other sectors realized net borrowing of USD 3,574 million.

Hence in May, Turkey posted USD 3.1 bn CAD; received USD 4.5 bn capital inflows.  Thus there was an outflow of USD 154 mn net errors and omissions as official reserves recorded net inflow of USD 1.3 bn.

In January-May, Turkey’s USD 12.7bn CAD was met with USD 4.5 bn capital flows, USD 6.7 bn net errors and omissions inflow as the official reserves declined USD 1.6 bn.