Turkey’s mammoth balance of payments deficit is on the way down – at least by some measures – but there is still a long, hard road ahead if the country is to resolve its financing difficulties.
Central bank data released on Wednesday showed a current account deficit for November of $5.2bn, in line with market expectations. That was more than October’s tally of $4.2bn, but less than November 2010’s level of $6bn, so bringing down the country’s rolling 12 month deficit for the first time in two years.
But the scale of improvement is small at present and the current 12 month deficit of $77.8bn remains formidable, at 10 per cent of GDP.
“The good news is that the constant rise in the 12 month current account deficit since 2009 is now halted,” wrote Güldem Atabay at Unicredit in Istanbul in a research note. “The bad news is that it will increase again in December reaching circa 10.4 per cent of GDP while the expected meaningful correction is to start from late 1Q12.”
She added that she expected the current account to move down to $65bn by this year’s end, accounting for about 8.5 per cent of GDP, “which of course is a correction though would still mean that Turkey’s Achilles heel remains”. Part of the constraint for Turkey are its formidable energy import costs, which totaled $45bn for the 12 months to November, much more than half the deficit.
Meanwhile the rate of growth of both imports and exports slowed; since the European Union is Turkey’s main market many economists expect the eurozone crisis to act as a drag on rebalancing Turkey’s trade account.
The November figures also showed an increase in central bank reserves by $1.9bn, although this is partially accounted for new rules that include commercial banks reserves left with the central bank. At present, many analysts reckon Turkey’s net reserves, which exclude such items as liabilities, at less than $50bn.
Since August, Turkey has spent some $15bn in defending the currency, and much of that intervention has taken place in recent weeks.
By contrast with the size of such interventions, the scale of foreign direct investment was disappointing in November, at just $218m. Overall, foreign direct investment finances considerably less than 20 per cent of the deficit, which is left depending on more fickle portfolio flows.
via Turkey: rebalancing, slowly | beyondbrics | News and views on emerging markets from the Financial Times – FT.com.