In March, the current account balance in Turkey posted a deficit for the fifth month in a row as the global rally in energy prices worsened the foreign trade imbalance. The current account deficit, which was announced as $5.55 billion on a monthly basis, was in line with the market expectation of a deficit of $5.7 billion. The current account deficit widened in the monthly period compared to the 3.33 billion USD deficit in March last year. On a 12-month basis, the current account deficit widened from $21.8 billion to $24.2 billion. Excluding energy and gold, the current account surplus increased from $32 billion to $34.8 billion.
When we look at the most determining factors in the current account; Most of the effects in the current account deficit, which came as expected, come from foreign trade. The energy bill also plays a decisive role in foreign trade items. This trend is also confirmed when looking at the deficit excluding gold and energy. Due to the increase in energy import costs, the deficit in goods trade increased from $2.99 billion to $6.34 billion year-on-year. While the total exports of goods increased by 22% compared to the previous year, the external deficit was high due to the fact that this increase was below the increase in imports.
Service revenues, on the other hand, continue to contribute positively to the current account balance thanks to high travel and transportation revenues. Services posted a surplus of $2.33 billion, driven by the $1.45 billion increase in net tourism revenue. Thus, travel revenue reached $4.5 billion in the first quarter; It was $2.0 billion in the same period of 2021. Before the pandemic, it was worth over $3.8 billion in 2019.
While net inflows originating from direct investments on the financing side were 296 million dollars in March, it is seen that there was a net outflow of 3.05 billion dollars on the portfolio side. While net sales of stocks were 744 million dollars, net sales of debt instruments were 201 million dollars. Official reserves decreased by 4.51 billion dollars. Due to the outflow effect in portfolio investments, financing of the current account deficit is mostly covered by reserves. Net errors and omissions or capital movements of unknown origin also showed a monthly inflow of 1.58 billion dollars.
The high course in commodity prices due to the Russia-Ukraine war causes the upside risk on imports to persist. The course of domestic demand is also observed as another determining factor in terms of imports. On the export side, the growth outlook in the EU, which has the potential to slow down, poses a risk. The dynamics related to the war may also have a negative impact on the global trade volume, creating a repressive outlook on exports. In the following period, a certain improvement can be seen with the contribution of tourism in the summer months. As for the headline current account balance, there should be positive developments in oil prices. For the month of April; According to the foreign trade data announced by the Ministry of Commerce within the scope of GTS (general trade system); Compared to the same month of the previous year, exports increased by 24.6% to 23.36 billion USD, while imports increased by 34.9% to 29.47 billion USD. In this context, the foreign trade deficit increased by 98.1% in April and reached 6.10 billion USD. In this context, we predict that a high trend in the current account deficit will continue until the summer months due to the impact of foreign trade.
The Central Bank will hold its next interest-setting meeting on May 26. The head of the central bank, Mr. Şahap Kavcıoğlu said in late April that “sustainable balance in Turkey's current account” is the key to achieving price stability targets. Despite consumer inflation rising to 70% in April, the bank kept the policy rate at 14% at every meeting in 2022. We would like to point out that the trend in the current account deficit does not create a positive and sustainable situation in terms of loose policies. The expectation of an improvement in the current account deficit was also among the basic assumptions in the policy implementation, in which interest rates were kept low and price stability was largely based on exchange rate-protected deposits and foreign exchange stabilization. However, since the current account deficit did not improve with the developments in the first part of the year, this target was also removed from the CBRT policy text.
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