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Turkey has reported a current account surplus for the first time in 20 months as tourists flock to the country and Recep Tayyip Erdoğan reverts to conventional management of the economy after securing a third term as president.
The balance of payments, the broadest measure of a country’s trade in goods and services, was $674mn in June, the first surplus since October 2021, according to data from the central bank on Friday. Tourism recorded a net inflow of $4.2bn, the bank said.
Turkey reported a 20 per cent rise in foreign visitors in the first half of 2023, attracting travellers looking for cheap holidays after the Turkish lira lost some 30 per cent of its value against the dollar this year. A fall in global prices for oil and gas, almost all of which Turkey imports, also helped tame the current account this summer.
Yet the balance of payments, which recorded a cumulative deficit of $36.8bn in the first half of the year, remains a vulnerability for Turkey’s $900bn economy. It was exacerbated before May’s general election, when Erdoğan kept credit cheap to spur economic growth, unleashing searing inflation.
Since his election victory, the president has appointed new policymakers who are seeking to tame the cost of living crisis, including by gradually raising interest rates. The central bank, under new governor Hafize Gaye Erkan, has lifted the benchmark interest rate by 9 percentage points since June to 17.5 per cent. But that remains far below inflation that is close to 50 per cent.
“It is still a bit early for the changes in policy to drive this” easing in the current account, said Roger Kelly, an economist at the European Bank for Reconstruction and Development, noting that interest rates had yet to substantially dent domestic demand for foreign goods in a country with a perennial trade imbalance.
“But the extent of the depreciation in the lira means we should be seeing this rebalancing happening as we go forward,” he said. “A significant slowdown in domestic demand would have an immediate impact on imports that would feed through to the current account.”
Barclays said in a note to clients that it expected the deficit to contract to $15bn next year “with loan growth and economic activity slowing down further”.
The latest data adds to early signs that Erdoğan’s about-face since the election may soon slow the economy. This week, official statistics showed unemployment in Turkey rose slightly to 9.6 per cent and that industrial production growth slowed to 0.6 per cent in June.
Financial markets welcomed Erdoğan’s appointment of Erkan and fellow former Wall Street banker Mehmet Şimşek to his old job as finance minister. Moody’s Investors Service this week praised the new economic team and said it could upgrade Turkey’s credit rating if it remained on the same track.
“We are determined to implement rule-based policies in line with international norms in order to ensure macro-financial stability and increase our country’s resilience to shocks. We believe this will reflect on our credit rating,” Şimşek wrote on X, formerly Twitter, on Thursday.
An upgrade in its credit rating is still likely to leave Turkey below investment grade. Foreign investors have dumped Turkish assets in recent years, repelled by Erdoğan’s intervention in policymaking to keep the economy growing.