Current account deficit was USD4.6bn in August…
According to the balance of payments data published by the CBRT, the current account balance was realized in parallel with the market expectations of around USD4.6bn in August. Our expectation was USD4.9bn, slightly above the market expectations. On the other hand, due to revision in historical data, 12-month rolling current account deficit was realized as USD23.2bn in line with our expectations. In July, this number was USD15.2bn. The former corresponds to 3.3% of GDP, up from 2.1% registered in the previous month.
This increase in the current account deficit was due to the non-energy surplus, which decreased from USD12.0bn to USD3.3bn. 18.2% rise in imports combined with the decline in exports by 9.2% y/y and 73.6% decrease in tourism revenues in August caused the current account deficit to rise so rapidly. We expect this expansion to continue in the coming months, though not at the same pace, and the current account deficit to be USD24.8bn (3.6% of GDP) by the end of the year. The risk of imports accelerating beyond our estimation poses an upside risk to our current account deficit projection.
Deceleration in capital outflows in August…
In August, capital balance pointed to an outflow of USD117mn against the USD1.6bn outflow seen in the same month last year. Capital outflow in terms of portfolio investments continued with USD2bn in August, while an inflow of USD374mn and USD1.5bn, respectively, was experienced through foreign direct investments and other investments. We see that the main source of the USD1.5bn inflow seen in other investments is from short-term loans amounting USD2.1bn and foreign deposits of USD2.4bn on a monthly basis. However, the asset buildup of banks in the order of USD2.1bn has limited the capital inflow. The combination of current account deficit with weak financing structure in August brought about the use of reserves of USD7.6bn while USD2.8bn were recorded as net errors and omissions.
Financing composition is fragile…
The 12-month rolling capital balance turned from a deficit of USD1.7bn in July to a deficit of USD188 mn in August. Almost USD16bn of this was realized from portfolio outflows, while real estate sales of USD4.5bn to foreigners enabled USD4.3bn total inflow in the form of foreign direct investments. On the other hand, short-term borrowing of USD12.4bn led to an inflow of USD11.5bn in the form of other investments. Considering that the current account deficit was much higher than the capital inflow in the last 12 months, reserve use has been USD36.9bn of reserves, including the financing of net errors and omissions item of USD13.5bn. Although we see a slight improvement in capital inflows, the financing composition not being provided from long-term and sustainable sources poses a risk on the exchange rate balance and financial stability in the medium term.
Non-bank sector continues to reduce debt… We witness that the increase in the debt rollover ratios of banks since June continued in August, but the debt reduction trend of the non-bank private sector continues. We do not see the banks’ short-term debt rollover ratio, but the debt rollover ratio for long-term loans was 94.9% in August, and 78.9% on a 12-month rolling basis (previous 77.6%). For the non-bank sector, these rates were 45.4% and 69.9%, respectively (previous 72.3%).
Özlem Derici Sengul, Spinn Consulting CEO
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