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Investing.com – While still stuck near an all-time low against the US, the Turkish government appears to be faced with a question about the inflow of unidentified billions of dollars in support of the economy and the lira.
The Financial Times says in a recent report that the Turkish government has suddenly added some $ 24.4 billion more to its wealth than it can explain this year.
The latest figures released by the Turkish Central Bank show that the country’s current account deficit continued to widen in (July), bringing the total deficit this year to $ 36.7 billion.
The FT says the country’s economic woes are well documented, as Ankara’s experience with interest rates and President Recep Tayyip Erdogan, who is not convinced that rising borrowing costs reduce inflation, has led to to very abrupt movements of the lira in the last year.
great migration
Conversely, from anonymous funds, capital flight is common in Turkey, where global investors have made a massive exodus over the past decade, according to Danske Bank:
The total of equity securities and public debt in lira owned by non-residents has been reduced to a fraction of what it was previously (20% for shares and 2% for bonds).
This dynamic has had some long-term consequences for the Turkish economy, as outflows have fallen by such magnitude, as have deficits, all bad news for the country’s foreign exchange reserves, at a time when it is trying to support the lira. and make sure its institutions still have enough foreign currency. .
mysterious flows
Ambiguous capital flows into Turkey reached new highs, allowing policy makers to increase foreign reserves despite a growing trade deficit and weak demand for lira assets.
The central bank of Ankara said on Monday that the money it cannot account for in the monthly balance of payments data rose to $ 5.5 billion in July, bringing the total for the first seven months of the year to 24.4 billion. dollars.
Often, these discrepancies (aka Net Errors and Elissions or NEOs) can be resolved once foreign counterparties clean up their data according to the Financial Times.
unexplained returns
Tourism revenue alone cannot explain the numbers: in July, vacationers’ revenues reached $ 4.5 billion, bringing January-July revenues to $ 16.4 billion, which represents about 70% of net errors and omissions of the same period.
“The reality is that we simply don’t know in detail what is driving revenue or what is keeping the lira intact,” says Liam Beach of Capital Economics.
According to the report, it is likely the result of misregistered capital flows, but in reality it can reflect anything from selling and depositing foreign currency to misregistrating service trade or smuggling.
It’s hard to know exactly what’s going on, but this has clearly provided a major boost to this year’s current account deficit, and if these unwarranted outflows are reversed, it will put the spotlight back on Turkey’s low reserve coverage.
Russian support
Meanwhile, BlueBay Asset Management’s Timothy Ash smells Russian influence, saying Turkish banks may be too happy to accept money from Russia, which risks sanctions.
Financial expert says Erdogan has certainly done his best to shake off the old adage “my enemy’s enemy is my friend” in recent months, as Turkey has forged closer trade ties with Russia, while also supplying drones. essential for the defense of Ukraine.
Turkish officials are somehow claiming that they believe they will be the net winners of sanctions in one way or another by easing flows, and if that materializes it gives an indication of the amount of money that could escape from Russia.
Our central bank reserves are starting to rise despite erosion over the past month to record and unprecedented levels.
lire now
The Turkish lira is down in these trading moments today, Wednesday, close to $ 18.2680 levels, down 0.1%, close to the lowest price ever recorded on December 20 at 18 levels. 36 lire.
For a full month the lira rose against the dollar, only 5 very limited gains against the dollar, while it fell from the levels of 17.8227 lire on August 15 to current levels.
Hard landing predictions
According to official data, the 2022 forecast for the dollar price was raised from 9.27 to 16.62, the 2023 forecast was increased to 21.52, and the 2024 forecast was raised to 24.62, where the forecast of the dollar price for 2025 was 25.77.
The growth target for 2023, set at 5.5% in the previous program, has been revised to 5%, the growth target of 5.5% for 2024 and the growth forecast for 2025 have been maintained it was set at 5.5%.
The 2023 inflation target, previously estimated at 8%, has increased to 24.9% and the 2024 target, which was a 7.6% target, has increased to 13.8%. The inflation target for 2025 has also been set at 9.9%. The inflation forecasts for 2022, previously set at 9.8%, have been raised to 65%.
The current account deficit projected for 2022 increased from 2.2% to 5.9%, the current account deficit for 2023, estimated at 1.5% in the previous plan, increased to 2.5% and the current account deficit forecast for 2024 has been revised to 1.4%. The current account deficit target for 2025 is set at 0.9%.
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