(MENAFN- Famagusta Gazette) Türkiye's chronic current account deficit is one of the most challenging issues that the government's new economic management team has to address to improve the country's financial woes, experts said. Türkiye's current account deficit hit 37.7 billion U.S. dollars in the first five months of the year, the largest ever in the January-May period, according to official data released on July 11, meaning that the country spent much more on imports than it made in exports.
The current account deficit was 7.93 billion dollars in May 2023 compared with a 5.40 billion dollars deficit in April, the Turkish central bank announced.
The publication of the figures comes after the central bank substantially raised interest rates from 8 to 15 percent under the leadership of its governor Hafize Gaye Erkan and Finance and Treasury Minister Mehmet Simsek, both of whom were appointed after President Recep Tayyip Erdogan's re-election in May.
This monetary tightening has been seen as a signal that the country was returning to a more orthodox monetary direction.
For over two years, Türkiye had adopted the unconventional method of lowering interest rates to fight rampant inflation that caused a cost-of-living crisis and the devaluation of the Turkish currency.
On August 1, 2021, one U.S. dollar was equal to 8.3 Turkish liras, while on Monday the greenback was trading at 26.29 liras.
High inflation figures and the lira's declining value have tormented consumers in the last few years.
Türkiye's annual inflation eased at 38.2 percent in June, down from 85 percent in October last year, but the purchasing power of consumers has not improved despite wage and pension hikes implemented by the government.
The lira has lost more than 30 percent of its value against the dollar since the beginning of the year, making imports more expensive for Turkish consumers while simultaneously making exports of the country's goods more attractive.
Meanwhile, the cumulative current account deficit for the last 12 months rose to 60 billion dollars, the highest since 2013.
“This indicates a high current account deficit situation above the sustainable level,” Enver Erkan, chief economist at Istanbul's Dinamik Investment Securities, told Xinhua.
The expert said that Türkiye's economy is still subject to inflationary pressures despite a drop in inflation figures as significant wage hikes are expected to fuel consumer prices.
“Inflation will record strong increases starting from July due to post-election costs, new hikes, wage inflation and rising exchange rates,” Erkan added.
“Overall, the (current account deficit) data once again confirm a growing need for a rebalancing in the economy,” ING Bank, a subsidiary of Dutch multinational banking and financial services corporation ING Group, said in a note to investors last week.
“Going forward, we will likely see an improvement in the current account as evidenced by the normalization in energy prices and continuing strength in tourism, while a recovery in global demand should also be supportive of the foreign trade balance,” the bank pointed out.
In 2022, Türkiye's current account deficit reached 48.7 billion dollars.
Hakan Kara, a former economist at Türkiye's central bank, said that the new economic management team has to deal urgently with both the deficit and the inflation issues.
“For the stabilization programs to bring lasting success, it is necessary to solve the inflation and current account deficit at the same time. The way to this is through increased productivity,” he said on his Twitter account.
Author famagusta gazette
