Turkey’s current account deficit hits highest level since records began

Turkey has posted a record high current account deficit, underscoring the challenge facing President Recep Tayyip Erdoğan as voters’ discontent over his stewardship of the $800bn economy grows ahead of a general election in May.

Erdoğan has vowed to tame Turkey’s chronic current account deficit, a key vulnerability for the economy, by lifting exports with a weaker currency. But higher global energy costs worsened the deficit, which jumped 43 per cent year on year to $9.85bn in January, the highest monthly level since the data was first collected in 1984, according to Reuters. Economists had expected a deficit of $10bn, a Reuters poll showed.

With exports failing to keep up with imports, the trade deficit widened 38 per cent in January to $14.24bn, hitting Turkey’s balance of payments, which covers the total value of goods and services that a country imports and exports.

“The idea was, ‘We’re going to export our way out,’ and that clearly isn’t working because Turkish companies need to import intermediate goods and energy to export,” said Wolfango Piccoli, co-president of political risk advisory at the consultancy Teneo.

The lira has lost about 60 per cent of its value against the US dollar since March 2021, when Erdoğan appointed a central bank governor who has embraced his unorthodox economic theory that cutting interest rates would slow, rather than fuel, price growth. Inflation hit 85 per cent late last year before slowing to 55 per cent last month.

The cost of living crisis has eroded support for Erdoğan’s ruling party ahead of the election on May 14. Shortcomings in the rescue and relief effort following last month’s huge earthquake also complicate his bid to extend his rule into its third decade. The disaster killed more than 55,000 people in southern Turkey and northern Syria.

The balance of payments in January did not record any “net errors and omissions” — money whose origin is unclear — for the first time in 12 months, central bank data showed. These unexplained inflows of capital, which have vexed economists, financed almost half of the current account deficit last year.

Should Turkey’s inflows prove insufficient to finance the deficit, the lira would come under renewed pressure, Piccoli said.

“It’s happening at the wrong time from Erdoğan’s point of view,” he said, referring to the looming vote that threatens to be the president’s toughest since taking power in 2003.

“He needs [those inflows] until mid-May, or it becomes an issue for the currency, the first channel of transmission in any crisis in Turkey,” said Piccoli.

Two opinion polls conducted since the earthquake showed Erdoğan lagging behind the opposition’s unity presidential candidate Kemal Kılıçdaroğlu by 10 percentage points.