Turkey: Services continue to drive current account improvement

With a better than expected August figure at US$0.5 bn (vs US$-0.1 bn market consensus), the current account balance has continued to improve. This has been driven by (i) a recovery in tourism revenues, though remaining below pre-covid levels, and (ii) softer core and gold imports supporting an improvement in the goods balance despite the ongoing uptrend in energy bills. Accordingly, the narrowing trend in the 12M rolling figure has remained intact with a further drop to US$23.0bn (c. 3.0% of GDP) from US$27.6 bn a month ago.The Central Bank of Turkey revised the 2020 figure down to US$35 bn, from US$37.3 bn previously.

The capital account was stronger by US$8.3 bn in comparison to the inflows in recent months, driven by the IMF’s SDR allocation at US$6.3 bn. Including higher net errors & omissions at US$4.5 bn, the monthly c/a balance and capital account, official reserves saw further accumulation, by US$13.2 bn.

On year-to-date basis, we saw: i) some improvement in (gross) FDI flows at US$7.0 bn vs US$5.3 bn in the same period of 2020, ii) non-resident portfolio inflows standing at US$5.1 bn vs. outflows of US$15.4 bn in the equivalent period of last year, iii) accelerating unidentified inflows at US$13.5 bn vs US$8.8 bn outflows, iv) trade credits up by US$5.7 bn vs a US$4.4 bn decline in the first eight months of last year, v) a net US$2.8bn borrowing by banks and companies vs US$7.5 bn net repayment, vi) residents taking US$11.9 bn of their assets abroad vs US$0.4 bn brought to Turkey last year between January and August, and vii) regarding international reserves, an increase of US$27.2 bn on the back of the CBT’s swap arrangements, the export re-discount scheme, Euro bond issuance and IMF’s SDR deployment vs a drawdown of US$39.0 bn in the same period of 2020.