January balance of payments data published by Central Bank of Turkey suggests that rising energy prices were already dealing a blow the hopes of the administration to generate an external account surplus this year. January industrial production and retail sales data for January also showed visible weakness, hinting that the rot in the economy predates the Ukraine Crisis.
The current account deficit on a 12-month rolling basis recorded a sharp expansion in January with the worst monthly figure since end-2017, and returned back to above the US$20bn level mainly on the back of the higher energy deficit. Current account deficits are expected to widen in the coming data months.
“With the worst monthly figure since the end of 2017, the 12-month rolling c/a deficit – which had shown a significant improvement last year – jumped in the first month of 2022 to $20.2bn (translating into c.2.6% of GDP) on the back of the more than quadrupled energy deficit to $8.1bn, as well as lower core trade surplus despite the narrower gold balance and further recovery in services revenues, commented ING Research.
“In the breakdown of monthly flows, we saw residents reducing their external assets and bringing them back, amounting to $2.4bn driven by trade credit repayments by foreign counterparties and declining financial assets of domestic banks held abroad. For non-residents, $4.0bn inflows were attributable to debt creating flows, namely $3.0bn trade credits, and $0.6bn deposits placed by foreign investors to Turkish banks – despite $0.5bn net debt payment, driven by banks being net payers for their short-term debt. Among non-debt creating flows, $0.8bn gross foreign direct investment (FDI) more than matched $0.4bn outflows from the equity market”, add ING note.
Ukraine Crisis Could Cost Turkey $30 Billion
On the other hand, loans provided from abroad to banks and government realized net repayment of USD496mn and USD 84mn, respectively, whereas other sectors realized net borrowing of USD 83mn. Net errors-omissions recorded net outflow of USD245mn. Official reserves decreased by USD942mn, commented YF Invest.
Reuters: Fallout of Ukraine war exposes Turkey’s vulnerable economy
CAD to increase in the coming months
Preliminary February data indicates 12-month CA deficit continued to increase in February. In addition to the weak levels of the Lira currency, increasing trend on commodity prices, especially in energy, leaded to significant deterioration on current account figures. Leading figures indicate that this trend would continue in February.
According to temporary figures of the Ministry of Trade, trade deficit was USD8.1bn in February (Jan.22: USD-10.3bn, Feb.21: -3.3bn). To recall, Russia-Ukraine War, which leaded to additional jump on the commodity prices, has started at the end of February. Especially, net energy imports could continue to stay at the high levels until April at least when tourism sector is in low season. Last but not least, if the period of the war extends, there could be negative impact on tourism revenues during the high season also. Our year-end CA deficit to GDP ratio estimate is at 1.9% and upside risks dominate our estimate. BoP figures of February to be announced on April 11.
Other Turkish experts forecast much higher current account deficits, reaching to $30-40 bn, 4-5.5% of expected 2022 GDP.
With her single B credit rating, CDS premium of around 700 basis points, Turkey will experience difficulties in financing the added trade deficit at reasonable rates. Banks may be forced to slow domestic credit issuance to spare FX deposit to foreign debt re-payments.
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