Turkey has posted a record high current account deficit, underscoring the challenges facing President Recep Tayyip Erdoğan as voter dissatisfaction over his management of the $800bn economy grows ahead of general elections in May.
Erdoğan has promised to reduce Turkey’s chronic current account deficit, a key vulnerability for the economy, by lifting exports with a weaker currency. But higher global energy costs added to the deficit, which rose 43 percent year-on-year to $9.85 billion in January, the highest monthly level since data were collected in 1984, according to Reuters. Economists expect a deficit of $10bn, a Reuters poll shows.
With exports unable to import, the trade deficit rose 38 percent in January to $14.24 billion, affecting Turkey’s balance of payments, which includes the total goods and services imported and exported by the country.
“The idea is, ‘We will export our way out,’ and it clearly doesn’t work because Turkish companies have to import intermediate goods and energy to export,” said Wolfango Piccoli, president of political risk advisory at consultancy Teneo.
The lira has lost about 60 percent of its value against the US dollar since March 2021, when Erdoğan appointed a central bank governor who has embraced the unorthodox economic theory that cutting interest rates will slow, rather than fuel, price growth. Inflation reached 85 percent late last year before slowing to 55 percent last month.
The cost of living crisis has eroded support for Erdoğan’s ruling party ahead of elections on May 14. Shortfalls in rescue and relief efforts after last month’s massive earthquake have also complicated his three-decade-long rule. The disaster killed more than 55,000 people in southern Turkey and northern Syria.
The balance of payments in January did not record “net errors and omissions” – money whose origin is unclear – for the first time in 12 months, central bank data showed. These unexplained capital inflows, which have vexed economists, financed almost half of the current account deficit last year.
If Turkish inflows prove insufficient to finance the deficit, the lira will come under renewed pressure, Piccoli said. “This is happening at the wrong time from Erdoğan’s point of view,” he said, referring to the upcoming vote that threatens to make him the toughest president since he took power in 2003. “He needs [those inflows] until mid-May, or it becomes a problem for the currency, the first transmission channel in any crisis in Turkey,” said Piccoli.
Two opinion polls conducted since the earthquake show Erdoğan trailing opposition unity presidential candidate Kemal Kılıçdaroğlu by 10 percentage points.