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period of destabilising capital outflows in the coming months,” Edward Glossop of Capital Economics wrote on July 20 in his Emerging Markets Capital Flows Monitor.
“One exception is Turkey, where the current account deficit has widened sharply in recent months as tourism receipts have collapsed and policymakers have tried to shore up activity by pumping the economy with credit. A recovery in tourism receipts should narrow the current account deficit over the coming months, but Turkey will remain one of the most vulnerable major EMs to balance of payments strains,” he added.
“Recessions will shrink current account deficits drastically, reducing EM external financing needs and vulnerability. However, external amortization remains a risk for some. Some countries, like Brazil and Mexico, have good buffers; instead, their critical problems of growth and fiscal outlook are more of a ‘domestic’ nature. South Africa, Turkey, and Ukraine are the most vulnerable, as reserve buffers are thin and their general outlooks are tough,” the Institute of International Finance (IIF) said on July 21 in a research note entitled “EM External Vulnerability under COVID-19”.
Turkey has the widest current account deficit and external financing needs in the IIF coverage.
The IFF sees the Turkish lira (TRY) as overvalued while it has noted that “a backloaded amortization schedule in the next twelve months eases near-term pressure in Turkey, but the trade-off policymakers face between growth and external stability is as acute as ever”.
On July 21, Simone Kaslowski, chairman of Turkey’s biggest industry and business group TUSIAD, said that ​bankruptcies in Turkey were set to increase in what’s left of 2020​ with economic growth remaining suppressed despite a revival in June.
TUSIAD expects a 2% contraction in Turkey’s GDP this year although the government seems determined to release slightly positive growth data as it did for 2019 despite that year’s currency crisis-induced recession.
Kaslowski also urged the government to return to free market principles to draw back foreign investment.
Turkey’s foreign currency reserves have shrunk significantly and foreign investment is in decline because the authorities are trying to keep interest rates low and the currency strong, he said.
A further decline in the central bank’s reserves risks increasing market turbulence, according to Kaslowski.
Kaslowski also advised the government to abandon the policy of taxing imports to protect domestic companies.
56​ TURKEY Country Report​ August 2020 ​ ​www.intellinews.com