Private sector debt is rising

Dünya Executive - - COMMENTARY -

The private sector’s external debt was realized at $296.4 billion at the end of May. According to data from the Central Bank of Turkey, debt increased by $12 billion in the first five months of the year. This is a rapid increase for five months. However, when you get to the bottom of the source of this increase, it is as follows: one third or even about 40% of this five-month increase was caused by exchange rate appreciati­on.

A total of $87 billion of the private sector’s foreign debt is short term and $209 billion of it is long term. Long-term debt has increased by $6.2 billion in the first five months of 2017, but the exchange rate has specifical­ly affected this debt as $4.5 billion of this $6.2 billion increase was due to the exchange rate appreciati­on.

In past years the dollar was in a very rapid rate of appreciati­on against other currencies, especially the euro, which made external debt seem low. It is the opposite this year. The fact that the dollar is depreciati­ng against the euro is resulting in the external debt looking bigger when expressed in dollars.

According to the May data, the private sector’s $209 billion foreign debt from abroad was accounted for by the dollar (60%), the euro (34%) and other curren- cies (6%). Therefore, the foreign currency exchange rate effect is almost entirely due to the change in the euro/dollar parity.

At the end of last year the euro/ dollar parity was at 1.05. The parity rose to 1.07 at the end of March, to 1.09 at the end of April, and to 1.12 at the end of May. In other words, a debt of 100 euros rose to $105 at the end of last year, $107 in March, $109 in April and $112 dollars in May.

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