TURKEY - Macro View: Balance of Payments –September 2022 (Gedik Investment Research)

C/A deficit remains high despite the USD7bn revision in tourism revenues
 
 
C/A deficit reaches USD3.0bn in September, slightly worse-than-expected, and continues to mount on a YoY basis. In September, Turkey printed a USD3.0bn C/A deficit, slightly worse than the USD2.85bn median expectation, and our USD2.7bn expectation. This compares unfavourably with the USD2.7bn surplus of September 2021, thereby leading to a further rise in the 12-month rolling deficit to USD39.2bn from last month’s USD33.5bn. Yet, note that there has been about a USD7bn upward revision in tourism revenues, which led to a similar decline in C/A deficit, which was USD40.7bn as of August ahead of the revision. The revision also led to an improvement in end-2021 C/A deficit to USD7.3bn from USD13.9bn. For the Jan-Sep period, the C/A deficit has reached USD38.0bn, implying a significant deterioration from USD6.1bn registered in the same period of 2021.
 
Capital inflows through the net-errors-and omissions remained significant in September. On top of the USD3.0bn C/A deficit, there has been further outflows of USD1.3bn through the capital account. Yet, as a result of some USD2.6bn inflows through the net-errors-and-omissions item (unregistered inflows and/or statistical error), the decline in the official reserves was limited to USD1.7bn in September. Although there has been a deceleration in the net-errors-and-omissions item roughly to the tune of the revision in tourism revenues (USD4.5bn for the Jan-Aug period, and USD7.0bn for the past 12-month period), it remains significantly high at USD24.9bn as of September, financing the major portion of the USD38bn C/A deficit over the same period. Note that net-errors and-omissions for 2021 also fell to USD1.4bn from USD7.1bn with the revisions. Apart from this, a USD2.3bn rise in banks’ deposits, a USD0.8bn rise in CBRT’s deposits were other significant financing items for September, while there has been about a USD4.3 outflow from the portfolio channel, mainly attributable to net Eurobond redemptions of both the Treasury and the banking sector.
 
C/A deficit is likely to mount in the remainder of the year despite very strong tourism revenues, due to massive energy import costs and the revival in other imports. The dramatic rise in the energy import cost and the import-dependent nature of manufacturing (leading to a similar rise in intermediate goods imports as exports) had led to material deterioration in foreign trade dynamics. On top of that, we have been observing a loss of momentum in export growth, as well as some revival in capital goods and consumption goods imports since 2Q22, which also adds to the C/A deficit. Note that, capital and consumption goods imports increased by 17% and 32% over the May-October period, while export (ex-oil and gold) growth over the same period stood at less than 9%. As such, we expect the deterioration in C/A deficit to continue over the coming months, as we now expect end-2022 deficit at close to USD54bn (roughly 6.5% of GDP). This points to an improvement to our prior USD60bn estimate. Yet, we should note that this is mainly attributable to today’s significant revision in tourism revenues.
 
Serkan Gönençler
Chief Economist
 
 Gedik Yatırım Menkul Değerler A.Ş.
 www.gedik.com

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