Foreign currency inflows of unknown origin may cover up to more than 70 percent of Turkey’s widening current account deficit gap in the coming months, economist Mustafa Sönmez wrote in Al-Monitor on Monday.
The country’s account deficit is expected to widen above $40 billion by the years-end, Sönmez said, with inflows in the categories of errors and omissions – which includes illicit movements of money earned from criminal activities – likely to end up covering a record-breaking amount.
Turkey’s current account deficit widened to $3.46 billion in June, the central bank reported earlier this month. The figure grew by $2.27 billion from June last year and the 12-month rolling deficit increased to $32.7 billion, it said. The central bank also recorded a $3.98 billion inflow under net errors and omissions, marking the highest monthly figure this year.
Current figures will bring Turkey’s cumulative deficit to at least $36.5 billion in the first seven months of this year, according to Sönmez, who added that number is likely to reach up to $45 billion by the end of 2022, with inflows of unknown origin appearing headed for a record rate in financing the gap.
Credit rating agency Moody’s on Friday downgraded Turkey’s rating to B3 from B2 on Friday, changing its outlook to stable from negative, Bloomberg reported. The country’s current account deficit will likely exceed expectations by a wide margin, the agency said, increasing external financing needs amid a tightening of global financial conditions.
Moody’s put its expectation of Turkey’s current account deficit at 6 percent of the gross domestic product this year, tripling its figures from before Russia’s invasion of Ukraine.
Analysts Kahtrin Mühlbronner and Alejandro Olivo told Bloomberg last week that attempts to stabilise the lira and restore foreign currency buffers were result in “increasingly unorthodox measures” that remain unlikely to be effective in restoring stability.
The role of the inflows of unknown origin has grown since Erdoğan came became president in 2018, Sönmez wrote, noting that such inflows hit their highest of $22.7 billion in 2018, when the lira went tumbling amid a crisis with the United States over a detained pastor.
Sönmez cited Central bank governor Sahap Kavcıoğlu, who in July said that, “Companies are said to have $500 billion in non registered money abroad. Even if 90 percent of this sum is false and only 10 percent true, it makes $50 billion. They should convert that money.”
“His claim may have been met with derision but is important in terms of reading Ankara’s intentions,” Sönmez wrote.
Ahval