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Turkey Trade Deficit Widens, Lira Slides to Record Low

Imports surged 20% outpacing a 9% increase in exports.Imports surged 20% outpacing a 9% increase in exports.

Turkey’s trade deficit, widened by a big increase in imports, is looming large for both the Turkish government and investors in its beleaguered currency.

Figures published by the state statistics institute, TUIK, over the Easter break may have gone unnoticed by many investors. But they showed the trade deficit in February widening a whopping 54% to $5.8 billion. Imports for the month surged 20% to $18.9 billion, outpacing a 9% increase in exports to $13.2 billion, Ahvalnews reported.

Data published by the Turkish Exporters Assembly, or TIM, two days later showed exports for the month of March rising 11.5% to $15.1 billion, a pace little changed from previous months.

TIM Chairman Mehmet Buyukeksi, never at a loss for words to talk up Turkey’s export performance, announced that the March data was “the highest in the history of the Turkish Republic”. It was also the first time in Turkish history that exports had exceeded $15 billion in a single month, he said.

But the reality is that the government is struggling to contain a current account deficit that is being swollen by imports of energy and unfinished goods.

President Recep Tayyip Erdogan is refusing to consider the option of increasing interest rates to reverse growing imbalances in the economy–inflation is now stuck in double figures and the central bank’s highest interest rate of 12.75% is now below 10-year yields on government debt. Core inflation, which strips out items such as petrol, stood at 11.4% in March about three times the emerging market average.

Because of its low-tech economy, Turkey needs imports to convert into exported goods. So, whenever exports rise, imports tend to follow.

Erdogan wants Turkey to be known as an export-driven economy. He is financing exporters with subsidized credit schemes to help boost an economy that grew 7.6% in 2017. His rhetoric is full of references to the country’s export performance in new markets such as Africa and the Middle East.

But concern about Turkey’s widening current account deficit–it was about 5.6% of gross domestic product as of January—is hitting the Turkish lira. The currency’s 6% drop this year is greater than any other major emerging market currency apart from the Argentinian peso.

The lira slipped to a record low of 4.04 to the dollar on Friday. Its level against the euro dipped to 4.97, also an all-time low.

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