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Fitch: Turkish Current Account Improves, But Durability is Key
February 12, 2015 / 5:57 PM / 3 years ago

Fitch: Turkish Current Account Improves, But Durability is Key

(The following statement was released by the rating agency) , February 12 (Fitch) The fall in the Turkish current account deficit (CAD) last year demonstrates the economy's capacity for rebalancing, Fitch Ratings says. The durability of this rebalancing and the extent to which it reduces Turkey's vulnerability to sudden shifts in investor sentiment is an important part of our sovereign ratings assessment. The Central Bank of the Republic of Turkey said on Wednesday that the CAD fell by 29% to USD45.8bn in 2014. The main drivers were a narrowing of the trade deficit (partly due to lira depreciation), and lower oil prices. The share of portfolio investment and short-term borrowing, which have been the mainstays of current account financing, fell to 56% from 81%, suggesting the quality of current account financing has improved. Portfolio inflows were largely unchanged, but there was a sharp drop in short-term borrowing, suggesting that banks and corporates are switching to longer-term borrowing. Rollover rates on long-term funding exceeded 100% for both banks and corporates. Rebalancing towards sustainable growth that is less reliant on net capital inflows, shown by the lower CAD, supports Turkey's sovereign credit profile. However, Turkey is a standout among emerging markets because of the size of its CAD, while large gross external financing needs leave it vulnerable to shifts in investor sentiment. This is seen in the continuing volatility of the Turkish lira, which hit an all-time low against the dollar earlier this week. A narrower CAD and a shift to longer-term instruments in net capital inflows would increase the sustainability of Turkey's external finances if they were material and lasting. Previous current account adjustments have proved temporary, and higher foreign direct investment would improve the mix of current account financing (as result of weak non-debt creating flows, net external debt has climbed to 29% of GDP). External financing has been resilient to shocks in recent years and Turkey has not experienced a 'sudden stop' of capital inflows. Nevertheless, this resilience may be tested in 2015, by US monetary policy tightening or geopolitical risks, which are already being felt in the sharp fall in exports to Russia, Ukraine, and Iraq (net exports were an important driver of economic growth in 2014). A weaker-than-expected eurozone recovery could also slow CAD adjustment. We affirmed Turkey's 'BBB-'/Stable Rating in October 2014. Our next scheduled review is on 20 March. Contact: Paul Rawkins Senior Director Sovereigns +44 20 3530 1046 Fitch Ratings Ltd 30 North Colonnade London E14 5GN Mark Brown Senior Director Fitch Wire +44 20 3530 1588 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings. Applicable Criteria and Related Research: Turkey here

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