Turkey’s current-account balance stayed deep in the red in February, a key vulnerability for the economy as President Recep Tayyip Erdogan’s government tries to keep the lira and inflation in check ahead of elections next month.
(Bloomberg) — Turkey’s current-account balance stayed deep in the red in February, a key vulnerability for the economy as President Recep Tayyip Erdogan’s government tries to keep the lira and inflation in check ahead of elections next month.
The shortfall in the broadest measure of trade in goods and services was $8.78 billion, the Turkish central bank said in a report on Monday, more than forecast by economists. That compares with a record deficit in January that was revised to $10 billion and a gap of $5.3 billion in February 2022.
With Turkey long hobbled by trade imbalances, Erdogan envisions the economy generating a current-account surplus by lifting exports thanks to a weak currency. But Russia’s war against Ukraine has pushed up energy prices while exports haven’t been able to keep up with imports.
The two main drivers of the deficit have been purchases of energy and gold, especially as households increasingly turned to bullion to shield themselves against inflation that climbed over 85% last year.
Though Turkey limited some gold imports in the aftermath of the deadly earthquakes in February, net non-monetary imports of the precious metal reached nearly $4 billion, Monday’s data showed.
While price gains have started to cool, economists still expect year-end inflation to be above 40%, or eight times higher than the central bank’s official target.
In a stark change from last year, capital of unknown origin has also become a drag on the current account. Still, after recording outflows in January, net errors and omissions saw an inflow of about $1 billion that eased pressure on Turkey’s reserves to fund the deficit.
Inflows related to net errors and omissions were a key source of covering the gap in 2022. Central bank reserves fell by $4.7 billion in February.
The services industry recorded a surplus of $2.3 billion, mostly driven by tourism revenue. Portfolio investment had a net inflow of $240 million.
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