13 pct drop in deficit fails to alley concerns

ANKARA / ISTANBUL

Economy Minister Zafer Çağlayan says that the government’s new incentive system may be the vehicle to help narrow the current account deficit.

November’s $5.2 billion current account deficit witnessed a 13 percent drop for the first time on a year-on-year basis but is still close to 10 percent of gross domestic product (GDP), which concerns economists. On a 12-month basis, the current account deficit narrowed from $78.6 million to $77.8 million.

“Sadly we still have a current account deficit close to 10 percent of GDP. Even if we see an improvement in seasonally adjusted figures, the speed of improvement is not enough to curb the demand in the foreign exchange market,” said BGC Partners Chief Economist Özgür Altuğ to Anatolia news agency.

Quality of financing is poor

Altuğ said there was no significant improvement in the current account deficit financing as only 14 percent of it was financed by foreign investment.

“This is a very low number. Six years ago our current account deficit was 55 to 60 percent financed by foreign direct investment. A number like 14 or 15 indicates that quality of financing is not too good,” added Altuğ. In March, Altuğ expects there will be an improvement in the current account deficit and that as a percentage of GDP it will drop to the 8 percent range but that as a whole the improvement will be marginal. The ratio of current account deficit to GDP is an important economic indicator for economists, who would like to see the reading fall below the 10 percent mark.

Economy Minister Zafer Çağlayan in a written statement yesterday emphasized that service exports were largely responsible for the current account deficit narrowing. “When compared with the same period last year, service exports increased by 15 percent registering $18.8 billion for the 11-month period bringing our total service export earnings to $18.2 billion.”

Incentive system will help

Çağlayan said the increase in tourism and construction sector revenues for November were important components in current account deficit financing. Tourism revenues in November went up by 13 percent compared to the same period last year and construction sector revenues rose by 4.5 percent compared to November 2010, according to ministry figures.

The government’s new “incentive system” would be a mechanism to help reduce the current account deficit, Çağlayan said.

Bahçeşehir University’s Economic Research Center (BETAM) predicted the current account deficit would narrow from $78 million in the third quarter to $76 million in the fourth quarter. However, BETAM also predicts that on a yearly basis, the current account deficit for the fourth quarter will be 9.8 percent of GDP. k HDN