Turkey: Current account records surplus in August thanks to tourist inflows
Turkey recorded a current account surplus of USD 0.5 billion in August, marking the first surplus in 10 months and improving from the USD 4.1 billion shortfall recorded in the same month a year prior (July 2021: USD -0.9 billion). The print overshot market analysts’ expectations of a slight deficit. In the 12 months up to August, the current account balance showed a USD 23.0 billion deficit, improving from July’s USD 27.6 billion shortfall.
The annual improvement came chiefly on the back of a marked year-on-year increase in the services trade surplus. The resumption of international travel and holidays facilitated by softer movement restrictions spurred tourist arrivals, which jumped 119.4% year-on-year in the month. A smaller merchandise trade deficit also supported the headline reading. This was mainly due to a softer increase in imports (August: +23.1% yoy; July: +16.8% yoy) compared to exports, which jumped 54.7% over the same month a year prior (July: +11.9% yoy).
On the financial front, there was a net inflow of USD 8.3 billion in August (August 2020: USD 1.5 billion outflow). The IMF’s USD 6.3 billion SDR disbursement, non-residents’ equity acquisitions and bond purchases, as well as a decrease in Turkish banks’ currency and deposit holdings at their foreign counterparts supported the reading. Rising non-residents’ deposit accounts within domestic banks also facilitated higher financial inflows. Lastly, official reserves rose by USD 13.2 billion in the month.
The country’s external position has improved thanks to the gradual relaxation of lockdown measures globally, spurring the tourism sector and merchandise exports. The latter has likely also benefited from a cheaper currency improving competitiveness. That said, Turkey is forecast to continue running a current account deficit as domestic demand firms and merchandise imports are set to grow. A healthier external backdrop should see the deficit narrow this year and next, however, and the probability of a balance of payment or currency crisis has diminished.
Analysts at Goldan Sachs added:
“Going into 2022, we expect services exports to increase further as we see further room for recovery in the tourism sector. However, we think that the positive contribution from this will be offset by the deterioration in the fuel trade balance due to higher energy prices. Hence, we do not see a further improvement in the current account balance and think that it will remain somewhat wider than 2.0% of GDP […]. Given that the external balance is close to equilibrium and likely to stay so, despite rising energy prices, our concern for the TRY is largely originating from the inflation and rate outlook.”