We can still find some foreign exchange
Our foreign trade deficit “silently” rose to $8.8 billion in July. It’s not a historical deficit record but still the highest amount for the last four years. The highest monthly foreign trade deficit before this July was in July 2013, with a record deficit of $9.9 billion. The current account deficit (CAD) formed its share of this high foreign trade deficit. The current account balance ran a deficit of $5.1 billion in July. This is the second highest CAD since May.
If Turkey is able to run up a deficit, it means it can somehow find some money from somewhere. Fortunately, we’ve been listening to an urban myth about the economy that has not often been spoken of lately. Some have said, “We do indeed run a CAD, but we can finance it.” But it’s not possible to run a CAD without finding money. Either we have to either find or borrow money to run a CAD. If we don’t have any money and can’t borrow, then we dip into and use the Central Bank’s reserves as a lender of last resort.
Where was the CAD f nanced?
Turkey ran a current account deficit of $5.1 billion in July and $26 billion in the first seven months of the year. But it could only find foreign funding of $1.8 billion to cover part of the $5 billion CAD. So, where there were no foreign funding inflows, Turkey relied on central bank sources, using $2.4 billion of its reserves. The figures over seven months have drawn significant attention. From the CAD of $26 billion, $24.7 billion was provided from Turkey’s financial account. The money came along as foreign direct investments remained at $4.3 billion, almost the same amount as the previous year.
The main money inflow has been through portfolio investments. These investments stood at $9.8 billion last year and rose to $18 billion this year. However, there has been a significant decline in other sorts of investments, which have fallen from $10 billion to $2.4 billion.
The reason for h gh nterest rates
We ran into debt of $14.5 billion by issuing debt securities as part of portfolio investments during the first seven months. A total of $9.2 billion of this debt came from the government: $5.2 billion in domestic debt and $3.5 billion in foreign debt. But the foreign debt amount is a net figure. Turkey actually borrowed $7.4 billion from abroad and paid only $3.8 billion back. Thereby, its net borrowings became $3.5 billion. We must address the question: “If we decrease interest rates under these conditions, can we sustain this debt or not?”
Gold mports ra s ng the CAD
Turkey is running toward a record in gold imports. Importation of gold in the first seven months amounted to $10.7 billion. While imports are skyrocketing, there is a decline in exports. That’s why, whereas we ran a surplus of $3.2 billion in gold trade during the first seven months of the previous year, we faced a deficit of $5.9 billion this year. Naturally, gold trade is also included in the current account balance. So, the CAD including gold trade increased from $21.5 billion to $26 billion. But what would happen if we exclude the gold trade?
The CAD ran for the first seven months of the previous year would have risen to $24.7 billion and the deficit for the same period this year would remained at $20.1 billion. , It’s best to consider the gold trade too when evaluating either the foreign trade balance or CAD.