Turkey’s current account deficit was 3.27 billion dollars in February, below the expected deficit of 3.65 billion dollars. In February 2023, the current account deficit was 9 billion dollars. The reason for the difference is the $5.4 billion improvement in the foreign trade deficit due to the slowing import growth.
According to the 12-month measure, the current account deficit, which was $45.5 billion at the end of 2023, narrowed to $31.8 billion as of February 2024. The annual improvement in the current account deficit is largely complete. According to the official economy program MTP, the current account deficit expectation at the end of the year is $33 billion. However, what seems more realistic is that the current account deficit will remain below USD 33 billion at the end of the year and decline to around USD 28 billion. Therefore, the improvement in the 12-month current account deficit of USD 32 billion will be slower in the coming months.
On the financing side, the main source was CBRT reserves due to the monthly current account deficit of USD 3.3 billion and net errors and omissions outflow of around USD 5 billion, as official reserves fell by USD 6.2 billion. Portfolio investments of 4.4 billion USD in Turkey in February 2023 were based on 2.7 billion USD of bank bond issues and 0.6 billion USD of private sector bond issues. The Treasury’s Eurobond issuance of USD 3 billion was also an important inflow item. However, outflows of 136 million USD on the stock side and inflows of 98 million USD on the bond side showed the weakness of the efforts to attract hot money in the pre-election period. An outflow of 142 million USD was observed in direct investments.
Together with the net errors and omissions outflows of USD 4.98 billion recorded in February, outflows whose source is not categorised exceeded USD 14 billion in the last five months. This item, which is speculated to be unregistered money movements within the framework of Turkey’s efforts to get out of the Grey List and capital outflows of Russian oligarchs, is not expected to see significant inflows in the coming periods. As a result, while the CBRT reserves were the main source of financing, they were zeroed out. In March, the month of elections, we will watch the 12-month foreign exchange reserves decline with the information that the CBRT’s reserve loss continues to be high.
As a result, in 2024, when the current account deficit is expected to decline to USD 28-30 billion at the end of the year, depending on the course of the upward trend in oil prices, an annual contraction of approximately USD 15-17 billion in the current account deficit will alleviate the pressures on TL. If the slowdown in the global economy continues to be less than expected, export growth will remain positive, while the rate of increase in imports, which is slowing down due to efforts to slow down domestic demand, may slow down significantly in the second half of the year. Tourism revenues, which are expected to be good and will reach approximately 50 billion dollars annually, will also support the contraction in the current account deficit.