Overview of June Balance of Payments Data
In June balance of payments data; we see a “balanced” composition with (i) a slightly higher current account surplus than expected, (ii) a balanced financing item on net, and (iii) a modest contribution from net errors and omissions. Strong tourism income, international securities sales and record borrowing by banks are the prominent details. Last week, we lowered our current account deficit forecast for 2024.
Current account balance is close to consensus
In June 2024, the monthly current account balance came close to the market median estimate (+0.3), with a surplus of 0.4 billion dollars. This is due to strong net tourism revenue. The core current account surplus, which excludes gold and energy trade, is at 4.5 billion.
With the removal of last year’s figures from the series, current account deficit for the last 12 months increased by 0.3 billion dollars to 24.8 billion dollars, while the 12-month total core current account surplus decreased by 1.1 billion dollars to 39.5 billion dollars. However, the worsening of the data compared to last year, especially on the core goods side, is due to calendar effects. The loss of working days due to Eid holidays is higher this June than last year. In summary, this is actually not that bad of a data print.
Gross travel revenue, one of the major items in the services balance, is increasing by 10% year on year with $5.5 billion, while gross passenger transportation revenue rose by 5.5% with $2.0 billion.
Net financing inflow resets after May record
We see a respite in the financial account after the record high capital inflow of $14.4 billion in May. Net financing inflow in June was only 0.1 billion dollars.
The main reason why we see inflows in the portfolio channel is the $1.4 billion sale of international securities by domestic banks. The respite after the very strong May performance is not surprising and we are seeing relatively strong financial investments in July.
The strong inflow in the credit item stems from domestic banks’ record long-term debt borrowing of $7.7 billion. When repayments are deducted, banks’ long-term net debt borrowing is 3.4 billion dollars, the highest figure since September 2015. We calculate the long-term external debt rollover ratio of banks as 181 (June 2023: 105%) and that of companies as 62% (June 2023: 83%). When we look at the first six months of the year, this rate is 166% for banks (January-June 2023: 98%) and 110% for companies (January-June 2023: 74%). It appears that pursuant the improvement in the sovereign credit rating, borrowing channels are opened.
A brief summary of the financing front is as such: Despite weak portfolio movements, credit channel is very strong, but banks probably deposit net proceeds in correspondent accounts abroad due to future payments and to skirt macroprudential constraints.
Reserves continued to increase
In the big picture of June, we see an increase of 1.2 billion dollars in Central Bank reserves as a result of a current account surplus of 0.4 billion dollars, a financing inflow of 0.1 billion dollars and an inflow of 0.8 billion dollars whose source cannot be determined (net errors and omissions). All in all, a good result for a month with no financial inflow.
We expect zero current account deficit in July
We expect full current account balance (zero current account deficit) in July, with the foreign trade deficit of $5.9 billion being balanced by the seasonal increase in tourism revenues. When we add up the issuance and redemptions of foreigners in TL securities such as stocks, TL bonds and Eurobonds, we calculate an inflow of 5.9 billion dollars in the portfolio account.
When we examine the high-frequency CBRT balance sheet data, we calculate the gross reserve increase, adjusted for gold price movements, as 4.2 billion dollars in July.
We lowered our 2024 current account deficit forecast
In the coming period, the decline in oil prices will directly support the external balance, and the tightening domestic financial conditions will indirectly support the external balance through low gold imports and weak domestic demand. On the other hand, the real appreciation in the Turkish lira and the slowdown in our export markets pose a risk to the current account balance in the medium term.
With the view that the first effect will be more decisive in the short term, we reduced our current account deficit forecast from 24 billion dollars to 20 billion dollars (1.5% of national income). Our forecast is consistent with past periods of tightening in monetary policy.
Serhat Gürleyen, Research Director
Dağlar Özkan, Economist
IS Investment report
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