External Debt in Turkey

Turkey - External Debt

Current account balance falls deeper into deficit in August

The current account balance swung from a USD 3.3 billion surplus in August 2019 to a USD 4.6 billion deficit in August 2020 (July 2020: USD 1.9 billion deficit). The print marked the ninth consecutive shortfall and the steepest since April amid the height of the first wave of coronavirus cases. Moreover, the data highlights that Turkey’s external sector’s woes remained elevated amid the ongoing pandemic, following a strong correction in the wake of the country’s 2018 currency crisis: On a 12-month rolling sum, the current account deficit came in at a 21-month low USD 23.2 billion in August (July: USD 14.9 billion shortfall).

The deterioration in the balance of payments data came on the back of a marked widening of the merchandise trade deficit and a smaller services trade surplus compared to a year ago. Merchandise exports continued to contract in August (-9.2% year-on-year; July: -8.5% year-on-year) due to weakened trade flows and external demand on the back of the fallout from the pandemic and associated containment measures. On the other hand, import growth surged 18.2% year-on-year in August and likely reflected strengthening domestic demand (July: -9.1% yoy). The narrowing services trade surplus was likely heavily influenced by a battered tourism sector amid foreign travel restrictions to curb the spread of the coronavirus. In August, tourist arrivals were down almost 70% from a year prior.

On the financial front, there was a net outflow of USD 0.1 billion in August, down from the net outflow of USD 1.7 billion in the same month a year earlier (July: USD 3.9 billion net inflow). The print reflected residents’ outflows being nearly equal to debt-creating inflows of non-residents. Lastly, official reserves decreased by USD 7.6 billion in August.

FocusEconomics Consensus Forecast panelists expect Turkey to record a current account deficit of 3.5% of GDP in 2020. Next year, the panel sees the current account deficit narrowing to 2.9% of GDP.