Turkey current account: a little lacking in the FDI department

So is this where Turkey ends up? Balance of payments figures out on Tuesday show that the country had a $5.6bn current account deficit for the month of January.

While broadly in line with expectations that seems to confirms a pattern some may find unsettling: a year of big falls in the deficit has come to an end, and the still hefty monthly total is overwhelmingly financed by portfolio funds rather than foreign direct investment.

The January figure brought the 12 month rolling deficit to $46.8bn from $46.9bn in December. That change is very small potatoes when compared to the vertiginous drop in the full year total of $75bn, or almost 10 per cent of GDP, in 2011. (The numbers have been revised to account for higher tourism revenues than previously included.)

Most analysts expect the deficit to widen again this year, though not to the levels of 2011, as domestic demands cranks up again. William Jackson of Capital Economics in London noted that on a 12-month rolling basis imports already rose by $1.3bn in January from December.

But what adds to his concern are financing issues. “Foreign direct investment has fallen back, which is exactly the opposite of what you would want to happen,” he said, comparing the $13.7bn net FDI inflow in 2011 with $8.3bn in 2012 and highlighting that the rolling 12 month figure edged down further in January, to $8bn.

That leaves the lion’s share of the $46.8bn deficit underwritten by portfolio funds – moreover the effect on FDI has yet to be seen of the government’s recent decision to scrap a showpiece $5.7bn privatisation, won by, among others, Malaysia’s sovereign wealth fund.

Jackson wrote: “The upshot is that the economy appears to be accelerating, but this is coming at the cost of rising external vulnerabilities… The prospect of a hard landing further down the line continues to linger in the background.”

And yet the allure of Turkey remains, deficit and financing problems notwithstanding. In a separate report on the new “Growth Stars”, Capital Economics enthused about the prospects for sub-Saharan Africa and southeast Asia, but also emphasises that Turkey, together with Poland and Mexico, should experience “strong rates of growth”.

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