Balance of payments

Multiple factors are conspiring to keep CAD high. Here’s a breakdown.

The CAD seems to be going nowhere but up. We break down the numbers

1

What are the latest figures in the current account balance?

In the first month of 2018, the current account deficit exceeded expectations, reaching $7.1 billion. The current account deficit increased by $4.4 billion, more than 163 percent compared to the same month last year. The 12-month total current account deficit climbed to $51.6 billion, reaching the highest level in the past 45 months.

2 What caused the rise?

The main factor influencing the increase in the current account deficit is the rapid increase in imports. In January, imports rose by $5.79 billion, or over 38 percent, to nearly $21 billion. The increase in exports, on the other hand, remained at 10.5 percent.

3 What role did gold play?

More than half of the rapid increase in the foreign trade deficit stemmed from the trade in gold. The foreign trade deficit arising from gold imports and exports constituted 29.6 percent of the total foreign trade deficit, or $2.26 billion. In January of last year, the gold trade surpassed $62 million. In January, gold exports declined by $500 million compared to last year, down $31 million. In contrast, gold imports rose $1.82 billion, or 38.6 percent, to $2.29 billion.

4 What is the situation in the services balance?

In January, a limited recovery took place in the services trade but it was ineffective against the rapid increase in the deficit in goods. Net tourism revenues were $822 million, rising $127 million, or just over 18 percent, compared to January last year. Tourism revenues increased by $238 million, or 24.95 percent, to $1.19 billion. Transportation revenues increased by $40 million, or 16.26 percent, to $286 million.

5 What has been the main issue in financing the CAD?

The net foreign exchange inflow in January was $11.48 billion, more than the current account deficit. Accordingly, foreign exchange reserves increased by $4.38 billion in January. Foreigners brought in $7.26 billion in portfolio investments, direct investments and deposits. Residents also reduced their foreign investments and brought $2.26 billion to the country. In January last year, res- idents increased their foreign investments by $3.14 billion which caused a foreign exchange outflow. Banks loaned out $763 million to overseas customers. The amount of loans taken abroad by the banks and the real sector was $2.39 billion. In the meantime, there was an unaccredited outflow of $1.24 billion of foreign exchange. The net errors, which had a continuous surplus after April 2017, was short for the first time after 8 months.

6 How has the FX entry been?

The amount of foreign exchange by the foreign residents as direct investments, portfolio investments and deposits increased by $2.64 billion, or 56.95 percent, compared to January last year. The amount of foreign currency brought by foreigners in January of last year was $4.63 billion. Portfolio investments led the way in currency inflow by foreign residents.

7 What is the situation in FDI?

The amount of direct investment in January amounted to $606 million, declining $72 million, or 10.62 percent, from the same period last year. All of this decline in direct investments occurred in investments outside of real estate. Excluding real estate, the direct investment amount decreased by 23.46 percent, or $72 million, to $235 million compared to January of last year. Real estate investments remained at $371 million, maintaining last year’s level.

8 Which items were prominent in foreign money inflow?

The foreign funding brought by foreigners was provided by hot money, which consists of portfolio investments and deposits. The amount of hot money increased by $2.71 billion, or 68.55 percent, to $6.66 billion in January. The increase in hot money was entirely acheived by means of bond investments of foreigners. Foreign investors’ equity investments fell $360 million, or 55.47 percent, to $289 million, compared to January last year. Foreign deposits decreased by $920 million, or 39.57 percent, to $1.41 billion. On the other hand, bond investments of foreigners rose by $3.99 billion, or 409 percent, to $4.96 billion, depending on the rising interest rates.

9 What is the maturity structure of the incoming sources?

The balance of payments indicates a risky outlook on the maturity of external sources entering the country. Long-term inflows consist of direct investments and longterm external loans are declining. Short-term fund inflows in January amounted to $9.05 billion, an increase of $ 3.94 billion, or 77 percent, compared to the previous year. On the other hand, there was a three million dollar outflow in long-term sources.

10 How sustainable is the deficit at these levels?

The fact that the current deficit continues to grow rapidly increases the fragility of the economy. On the other hand, foreign source inflow, which is almost entirely based on short-term resources, raises vulnerability. This is due to the negative evaluations of foreigners on economic and political developments. This will continue to have an impact on currencies and thus interest rates and inflation.