What does the balance of payments say for 2019?
Hot money: Hot money inflows fell in 2018 sharply from 72.46 percent to $7.32 billion. In addition to Turkey’s economic fragility, the reversal in global fund flows played a leading role in the reduction of hot money inflows. Apart from the unhealthy contraction in the current account deficit, problems feeding external fragilities continue.
In the light of the global economy and the possible developments in the country, the stagnation of hot money will continue to put pressure on exchange rates and interest rates in 2019. Hot money fluctuations will be sensitive to domestic and foreign political developments as well as the economic policies to be followed after the elections.
- Direct investments: Direct investment amounted to $13.16 billion, an increase of $1.62 billion or 14 percent. However, 79 percent of the increase came from home sales.
Foreigners’ reluctance in real economic investments will continue in 2019. Concerns over the rule of law and politics and economic uncertainties will continue to be the main factors affecting the foreign investment trend.
- Domestic capital: One of the most striking aspects of capital movements in 2018 was a 264 percent jump in the amount of domestic hot money going abroad in the form of deposits, stocks and bonds.
Domestic insecurity and political concerns are decisive in the flight of domestic capital. If there is no improvement in these two areas, this trend will continue to exist and will continue to have a negative impact on domestic exchange rates, interest rates and investments.
- Foreign loans: Loans borrowed in 2018 are $ 6.81 billion less than those paid. This was due to the increase in foreign exchange risk, the difficulty in finding external loans and loans becoming more expensive. Banks played a leading role in the net repayment of foreign loans at $15 billion.
The tendency to reduce foreign exchange debts in the real sector will be effective in 2019. This in turn will lead to a dynamism in the demand for foreign currency and a decrease in investments. The decrease in foreign loans of banks will combine with the rising credit problem and lead to the continuation of the recession in credit volume in 2019. This means that the contraction in the economy will also dominate 2019.
- Foreign exchange reserves: Foreign exchange reserves declined by $10.38 billion in 2019, despite a $20 billion decrease in the current account deficit and a record level of $21.17 billion unaccredited foreign exchange inflow, a 33.5 times increase.
In the light of these developments, the foreign exchange reserves will possibly continue to melt down. This would mean that the external fragilities will remain severe and therefore the high tension on exchange rates and interest rates will continue.