Page 56 - TURKRptMay19

second half of the year.
Dramatically lower cumulatively. Since December, the country’s cumulative current account deficit amounts to $2.81bn due to the limited recovery in economic activity financed by fiscal easing and lending by public banks in the run-up to the March 31 municipal elections. In January-February, the cumulative deficit in the current account amounted to $1.31bn. That’s dramatically lower than the $11.5bn seen a year ago when GDP growth was still booming.
The 12-month rolling cumulative deficit has declined for a ninth consecutive month since the $57.9bn seen in May 2018. It reached $17bn in February from $20.8bn in January.
“External balances continued to improve rapidly [in February] due to weaker domestic demand and increased price competitiveness, along with a contribution from the recovery in tourism,” Muhammet Mercan of ING Bank said in a research note, adding: “The government’s increasing external bond issuance has remained supportive for the capital flow outlook [in February].” “The improvement over the same month of 2018 is again attributable to a contraction in foreign trade while the impact of other items was relatively small,” Mercan also said. He concluded: “The challenging picture for external financing continues, with less borrowing by corporates and especially banks.”
Elevated external financing requirements. Going forward, ING Bank expects external financing requirements to remain elevated given the hefty external debt repayment schedule. This means that Turkey will remain sensitive to shifts in global risk appetite for emerging markets.
The current account deficit is continuing the declining trend brought on by the contraction of the trade deficit since last year, Haluk Burumcekci, who runs Burumcekci Research and Consulting, was reported as saying, adding that the trend would continue despite some signs of it slowing down. “There could be a surplus due to seasonality in July, August and September when tourism is high. If the economy recoups very fast, it could limit that by pulling imports up but there is currently no sign of that,” he said.
5.2.3 Capital flight dynamics
Turkey “arguably in a second sudden stop”. “Last year’s sudden stop in the BoP gave rise to a severe credit crunch, cutting the current account deficit and reducing external vulnerability; the credit expansion in Q1 of this year undid a lot of that progress,” the Institute of International Finance (IIF) said on April 12 in a research note.
Serkan Gonencler of Seker Invest observed in a research note entitled “C/A deficit continues to shrink with the ongoing deleveraging process” that “in February, major capital inflows were realized through the Treasury’s USD2.0bn net Eurobond issuance, the real sector’s USD0.5bn Eurobond issuance, a USD0.5bn net FDI inflow and a USD1.3bn inflow through trade loans . Meanwhile, banks continued to reduce debt, but to a much lesser extent compared to the previous few months, by USD0.2bn, or with an 87% rollover ratio.”
He added: “Another USD0.4bn outflow from banks came from non-residents’ deposits. The corporate sector also paid a total USD0.7bn net debt in February, marking the largest outflow through this channel since early 2017. There was also a USD0.5bn outflow from TRY bonds. Banks’ total net debt (loan) redemptions over the past 12 months stand at USD17.8bn, a large portion (USD15.5bn) of which has materialized since August. Banks also reduced debt over the past 12 months by USD1.6bn through Eurobond
56 TURKEY Country Report May 2019 www.intellinews.com