Foreign debt appears to climb as dollar weakens
In the Central Bank’s statistics measuring the private sector’s long-term foreign borrowing, it uses euro-dollar parity of 1.0459, the rate at the end of 2016. Now we have figures for the end of March, and the dollar has weakened, with the euro rising to 1.0741. The U.S. currency has also declined against the Swiss franc, the British pound and Japanese yen.
This loss in the dollar’s value has negatively impacted the Turkish private sector. Its foreign debt appears to have risen, especially due to the euro’s gains against the dollar.
Of the private sector’s long-term foreign borrowing, 61 percent is denominated in dollars and 33 percent is in euros. That is why changes in the euro-dollar exchange rate can significantly pull the total debt stock in a higher or lower direction.
According to the Central Bank data, the private sector’s long-term foreign borrowing at the end of March was $203.9 billion, compared with $202.8 billion at the end of last year, showing a rise of $1.1 billion in the first three months of the year.
The dollar’s depreciation against other currencies– except the lira – paved the way for foreign debt to appear $1.7 billion higher. In other words, without the exchange-rate effect, foreign debt would not have risen $1.1 billion, but would have declined by $600 million.
The effect of the exchange rate was due mainly to the euro. The appreciation of the euro saw the private sector’s long-term foreign debt, a third of which is denominated in euro, rise by $1.8 billion. The lira’s depreciation reduced the foreign debt by about $252 million. The difference in the dollar-euro exchange rate had very little impact on the private sector’s short-term foreign borrowing; those loans rose by just $57 million due to the difference in the exchange rate.