Turkey’s net forex reserves fell to just $1.5bn in February – FT

A surge in Turkey’s short-term borrowing masked a drop in the country’s net foreign currency reserves to just $1.5 billion last month, said the Financial Times.

New data released on Friday raised serious concerns about Turkey’s ability to protect its economy and tackle any large declines in the value of the lira during the coronavirus outbreak, the FT said.

At the end of last month, the Turkish Central Bank sharply increased its borrowing through short-term swap operations - which it uses to exchange lira with local banks in return for dollars - to $25.9 billion. 

When Turkey’s net foreign assets - a sum reached by subtracting foreign currency liabilities from assets - of $27.4 billion were deducted from short term borrowing, the figure left just $1.5 billion of net foreign currency reserves.

Brad Setser, a senior fellow at the Washington-based Council on Foreign Relations, told the FT that the decline in foreign currency reserves last month was “significant” and likely to worsen.

“Turkey needed more reserves even before the shock from the coronavirus - and it now has an even bigger need,” he said.

Concerns over the economic impact of the coronavirus pandemic have sent tremors through the financial markets. The rating agency Fitch warned this week that Turkey’s high indebtedness - with around $170 billion in short-term debt payments due this year - made it particularly vulnerable to global market fluctuations. 

The Turkish lira fell 3 percent against the U.S. dollar this month - and almost 8 percent in 2020.

Turkey’s net foreign currency reserve level “is not sufficient to enable the central bank to make a sustained defence of the currency,” Paul Gamble, head of emerging Europe sovereign ratings at Fitch, told the FT.