External Debt in Turkey

Turkey - External Debt

Current account deficit narrows on an annual basis in May

Turkey’s current account deficit narrowed from USD 4.0 billion in May 2020 to USD 3.1 billion in May 2021 (April 2021: USD -1.7 billion). The print slightly undershot market analysts’ expectations of a USD 3.0 billion shortfall. Furthermore, on a 12-month rolling basis, the current account deficit narrowed to an eight-month low of USD 31.9 billion (April: USD -32.8 billion).

The annual improvement came solely on the back of a wider services trade surplus in the month, partly due to the easing of movement restrictions at home and abroad. In May, tourist arrivals jumped over 3,000% year-on-year. However, the data was again flattered by a low base effect. On the other hand, the merchandise trade deficit increased on the back of rekindled domestic demand. Imports of goods rose 57.1% year-on-year in May (April: +58.2% yoy) and, although they were outpaced by goods exports, which grew 72.0% (April: +109.4% yoy), they weighed on the trade balance.

On the financial front, there was a net inflow of USD 4.5 billion in May, down from the USD 7.9 billion net inflow recorded in the same month a year prior (April: USD 0.7 billion net inflow). Non-residents’ acquisition of equity securities, the issuance of government debt and non-residents’ deposit holdings within Turkish banks offset Turkish banks’ currency and deposit holdings within their foreign counterparts and banks’ net repayments. Lastly, official reserves increased by USD 1.3 billion.

Reflecting on the outlook, analysts at the EIU added:

“The current-account deficit will narrow sharply, to 2.2% of GDP, this year as the economy begins to rebalance. Attracting sufficient capital inflows to cover the deficit and service foreign debt, without further drawdowns of already inadequate foreign-exchange reserves, will be complicated by the renewed uncertainties relating to monetary and foreign policy. We expect conditions for borrowing from abroad to deteriorate, given the widespread lack of investor confidence.”

FocusEconomics Consensus Forecast panelists expect Turkey to record a current account deficit of 3.2% of GDP in 2021. In 2022, the panel sees the current account deficit narrowing to 2.5% of GDP.