Turkey sees another large current account deficit

Turkey's current account balance, which recorded a large widening in the deficit in the first month of this year, saw another big deficit in February at US$-5.7bn; it's more than doubled over the same month of 2021. The 12M rolling current account is also on the rise with US$-21.8bn (translating into c. 2.9% of GDP). A quick glance at the February data points to:

1. a continuation of the strong recovery in the services balance
2. a narrower deficit in the goods balance
3. a better primary income, and
4. a slightly higher core (excluding energy and gold) trade balance

It's important to point out that energy bills have seen a three-fold increase in comparison with February 2020 which contributed to the monthly outcome.

The capital account was in positive territory but remained weak with a mere US$3.4bn inflows attributable to non-resident flows. With the large current account deficit and slightly negative net errors & omissions at US$0.5bn, reserves recorded a US$2.2bn decline.

In the breakdown of monthly flows, residents increased their external assets by US$1.7bn attributable to rising deposits in local banks abroad, and also probably down to the impact of residents’ portfolio investments and outward FDI. For non-residents, US$5.1bn inflows were mainly attributable to debt creating flows, namely i) US$0.5bn trade credits and ii) particularly US$5.2bn deposits placed by foreign investors to Turkish banks, including US$2.7bn at the Central Bank.

On the flip side, net borrowing turned negative with long-term debt repayments of banks despite their net short-term credit drawings and the corporate sector’s continuing external financing. Among non-debt creating flows, US$0.6bn gross FDI more than matched US$0.2bn outflows from the equity market.