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Aug 10 2018

Turkey current account gap narrows in sign of rebalancing

Turkey’s current account deficit narrowed in June in a sign that the economy is re-balancing following rate increases and a slump in the lira’s value.

The deficit declined by $818 million from June 2017 to $2.97 billion, the central bank said in a statement on its website on Friday. That took the deficit over the past 12 months to $57.39 billion, about 6.5 percent of gross domestic product, from the $57.6 billion reported for May.

But the improvement in the deficit was negated by a net outflow of $883 million in portfolio investment. Turkey needs such investment in its stocks and bonds to finance the current account because other means of revenue, such as foreign currency reserves and direct investment, are declining. Official reserves fell a whopping $6.99 billion during June, the central bank said.

Turkey’s lira has slumped more than 30 percent against the dollar this year as economic stimulus by the government led to a surge in imports that widened the trade and current account gaps. The currency has also slumped amid a deterioration in relations with the United States and as inflation surged to almost 16 percent, about four times higher than the average in major emerging markets, raising concern for economic overheating.

The central bank has raised interest rates by 500 basis points this year to 17.75 percent to help stem inflation and losses for the lira. Investors say the measures are insufficient to stem the lira’s decline.

The lira dived to a record low of 6.468 per dollar on Friday amid a political crisis with the United States over Turkey’s internment of Americans and as President Recep Tayyip Erdoğan cited Allah as a protector against the currency’s declines. It dropped 6.4 percent to 5.90 per dollar at 10:42 a.m. in Istanbul.