Güldem Atabay: Dreams are current account surplus, realities are growing foreign deficit and war

According to TUIK data, exports in January increased by 17.2% annually and became 17.6 billion dollars. The increase in imports, on the other hand, was 54.2% at a remarkable level, bringing the monthly level to 27.9 billion dollars. The combination, on the other hand, is a 235% increase in the foreign trade deficit in January compared to the previous year with 10.3 billion dollars.

Besides, adjusted for seasonal and calendar effects according to the series; While exports decreased by 4.9% in January, imports increased by 10.0%. This means that the thesis of the government that “I will create a foreign trade surplus with a worthless TL policy” did not work at the beginning of the year.

Of course, Turkstat figures are not shocking due to the monthly foreign trade deficit of 10.4 billion dollars, which was pointed out in the pioneering January foreign trade data announced by the Ministry of Commerce. But bad enough.

Looking at the details, the effects of the government’s desire for growth to become uncontrolled, accompanied by rising inflation, are observed. Also, In January, the increase in imports excluding energy products and gold was 31.1%, and the increase in exports in the same category was well above 19.6%.

The fact that the gap in between looks “small” at $1.7 billion is not insignificant as it points to the main direction of the trend.

Imports will increase while exports will slow down

There are two main factors behind the increase in Turkey’s foreign trade deficit. The first is the inevitable slowdown in the growth performance in exports, accompanied by rising inflation and partially normalizing foreign demand. We will witness the continuation of this trend accelerating in the coming months. On the one hand, the slowdown in demand due to the failure of high inflation wage increases to accompany the sudden increase in inflation in the main market Europe will slow down Turkey’s export growth. And of course, the shock of war inside Europe will also have a shock effect on demand.

On the other hand, if the oil price per barrel at the end of 2021 is around $70, it will continue to inflate Turkey’s energy import bill if it rises above $100 today. Experts were writing and drawing that the supply problems and high demand in the oil market would reduce the price to 100 dollars in the spring, even if the Ukraine War had not occurred. Now this trend is even stronger. The effect of the increase in energy costs on the import side is not likely to be compensated by the cooling of domestic and foreign demand. During the first quarter of 2022, the 50% or more upward trend in imports will be permanent.

Is the current surplus possible?

The January foreign trade figures are the harbinger of the facts for the AKP’s economy management, which pursues the dream of achieving price stability with a current account surplus. While increasing energy costs will increase inflation, the weaker than expected tourism revenues to be added to the foreign trade deficit will be among the reasons for creating a current account surplus.

The government will face the consequences of implementing a dangerous economic policy by taking all the risks that appear on the table. The calm achieved in the last mistake in TL, accompanied by sales of 4-5 billion dollars, the increasing current account deficit, the intervention of the Fed and the ongoing geopolitical reality will put the TL under pressure again.

Aside from the fact that the SWIFT decision disrupts the Russian tourist’s holiday plans abroad, the rapid depreciation of the ruble and the high interest rate hike by the Russian Central Bank will not help balance the situation in the ruble. With rising inflation and the loss of income from the currency, ordinary Russian citizens will rein in their holiday spending. It is unrealistic to expect tourists from Ukraine. In this case, the 35 billion dollars tourism income expected by Turkey this year is now an unattainable level despite the end of the pandemic. Moreover, Putin, who threatens Europe, will most likely cause a loss in the European tourist flow. The dollar equivalent of this can reach 5-6 billion for Turkey.

The fact that the oil price remains $100 and above is already enough to add 15-20 billion dollars to the current account deficit. The impact of the slowdown in export growth should be added to this.

As a result, the AKP government, which claims that it will create a current account surplus and even make it permanent, will face the facts within the framework of its remaining capacity. We will witness Turkey’s 2022 current account deficit level rapidly shift from $14.9 billion at the end of 2021 to $30 billion.

How to get out of this hole?

During this period, Nebati and his team, which can be expected to try to hold the TL with artificial and very risky steps like KKM, will continue to prepare the ground for a potentially significant loss of value in the TL.

The reason we are in this vicious circle is the short-sighted choices of the AKP government in its economic policies, as well as the deliberate erosion of Turkey’s relations with the West, especially in recent years, and the long-term capital fleeing from Turkey as political and individual freedoms diminish.

While the balances in the world are changing permanently, the way to reverse this trend and prevent the realization of risks is simple. In addition to returning to the implementation of rational economic policies, tidying up Turkey’s relations with the West and establishing the rule of law.

The question is whether the current AKP-MHP government is willing to rectify the order it has destroyed with a comprehensive policy change. Likewise, while the irrational economic policies lead to the expected bad results, we experience how the erosion of law and justice puts a country’s economy in a bottleneck.


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