Turkish Current-Account Gap Narrowed for First Time in 2 Years in November

Turkey’s current-account gap narrowed for the first time in two years, supporting government arguments that the worst is over for a deficit that weakened the lira the most among emerging market currencies last year.

The deficit was $5.2 billion in November, compared with $6 billion in the same month of 2010, the central bank in Ankara said on its website today. That matched the median estimate in a Bloomberg survey of nine economists. The last time the gap narrowed from a year earlier was in October 2009.

The 12-month cumulative gap shrank to $77.8 billion, about 10 percent of estimated gross domestic product. A shortfall of that scale represents a risk to economic stability, Fitch Ratings said in November. Concern over Turkey’s ability to finance the gap helped drive the lira 18 percent lower against the dollar last year, the biggest depreciation among emerging- market currencies tracked by Bloomberg.

“One can be confident that it has peaked, but not that the speed of adjustment will be satisfactory,” Manik Narain, an emerging-market strategist at UBS in London, said by e-mail. “While the worst of the news has passed, it is far from signaling that the situation is sustainable.”

The lira erased earlier losses after the figure was released and was 0.1 percent stronger at 1.8661 per dollar at 10:19 a.m. in Istanbul.

Foreign Reserves

The deficit will gradually improve and “the worst is behind us,” Turkish Deputy Prime Minister Ali Babacan said Jan. 5. Central bank Governor Erdem Basci has restricted banks’ ability to lend, arguing that domestic demand for imported goods financed by credit is the main driver of the deficit.

The central bank spent about $15 billion of its foreign exchange reserves since August last year to support the lira, Basci said Jan. 6, calling the expenditure “worth it” to stop the falling currency fueling inflation.

Reserves (TURWL) declined to $78.3 billion as of Dec. 30, equivalent to about four months of imports. The bank may not be prepared to allow reserves to fall below $60 billion, Royal Bank of Scotland economist Tim Ash said in a Jan. 9 report. The reserves declined from a peak of $93.9 billion in July.

Turkey’s government and companies have $135 billion in external debt that matures in the 12 months from October 2011, according to the central bank. Basci said Jan. 9 that there’ll be “no problem” financing those repayments because Turkey’s stability means it will draw a share of the additional liquidity provided by central banks in the U.S. and Europe.

“Turkish corporates felt no funding difficulties and rolled 130 percent of their external debt in November, bringing the annual average to around 124 percent,” Tevfik Aksoy, chief economist for the region at Morgan Stanley & Co. in London, said by e-mail. “This means they have been raising more funding than their obligations.”

Turkey imports nearly all its energy needs, creating a trade deficit that’s been widened by demand for imported consumer goods. Prime Minister Recep Tayyip Erdogan, re-elected to a third term in office in June, aims to slow economic growth to 4 percent this year from more than 8 percent in 2011, according to government plans announced Oct. 14.

To contact the reporters on this story: Steve Bryant in Ankara at sbryant5@bloomberg.net; Selcuk Gokoluk in Istanbul at sgokoluk@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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