Turkey’s January current account deficit boosts hopes for year-end

ANKARA

The current account deficit has shrunk 16 percent from $5.8 billion to $4.87 billion in January within a one-year period. AFP photo

With the boost of rising export revenues from a weaker Turkish Lira, Turkey’s current account deficit has narrowed over expectations in January, fuelling government hopes of seeing a remarkable contraction in the gap by the year-end.

According to the balance of payment data released by the Central Bank yesterday, the country’s current account deficit has become $4.88 billion in January, falling by $932 million from last year’s same month. The deficit, which showed a 16 percent increase on an annual basis, has come far below the market expectations, which were between $7 and $8 billion.

Turkey’s current account deficit, chronically a weak spot, took a sharp turn for the worse in 2013, soaring to $65 billion, coming way above the government’s target in its Medium Term Program, which was $58.8 billion.

The government estimates the current account deficit to retreat to $55.5 billion in 2014, hoping its ratio to the GDP to be 6.4 percent.

However, both financial authorities and analysts have started to make more optimistic predictions, betting Turkey’s current account deficit may contract more than expected in 2014. In his remarks, Finance Minister Mehmet Şimşek has repeatedly said “a moderate rise in domestic demand, a rise in foreign demand, the devaluation of the lira, as well as the macro-prudential measures taken,” would have a considerable impact on the deficit.

Analysts also revised their forecasts to below $50 billion, citing an expected drop in gold import, slowing down growth, the Turkish Central Bank’s interest rate hike and the devaluation of the lira.

Export drive

Turkey’s gold imports last year skyrocketed by 150 percent to reach a record level of 302.3 tons totaling $16 billion, as Ankara continued paying for Iranian natural gas and oil imports using the lira and as Tehran used deposits held in Turkey’s state-run Halkbank to buy gold. Turkey imported only 6 tons of gold bullion in January, a 47 percent drop compared with the same month last year and an 81 percent plunge from December. February data showed the trend of cutting gold exports continued as the amount of imported gold plunged to 1.27 tons.

“We see the gold trade impact on the current account deficit,” ING Bank Economist Muammer Kömürcüoğlu said.

In addition to the expected decline in the gold trade, the current account deficit is expected to be driven downwards by an increase in exports. “We maintain our opinion that there will be a remarkable recovery in the current account, as the lira’s weak performance and the recovery in the Eurozone will reflect on exports,” Kömürcüoğlu also said. Moreover, the government also places high hopes on the macro-prudential measures that took effect Feb. 1.  The BDDK introduced limitations last year on monthly installment payments to curb consumers’ use of credit cards to pay for goods in the hope of stemming the flood of money spent on imported goods.