Budget Gap Main Problem Behind Turkey’s Current Account Debt
Report puts blame for Turkey’s current account debt on budget deficit
The main element behind Turkey’s current account debt problem is the budget gap, not the private sector, according to recent report by the Economic Policy Research Foundation of Turkey, or TEPAV.
The country’s current account deficit reached new highs in March at $9.8 billion. The cumulative deficit for the 12 months, including March, was $60.5 billion, or about 7.7 percent of the forecast gross domestic product, or GDP, for 2011.
Turkey’s February budget produced a surplus of 988 million Turkish Liras, following a deficit of 2.3 billion liras a year earlier.
Some 80 percent of the gap is financed by foreign “short-term resources,” the report prepared by Sarp Kalkan of TEPAV said.
The government’s measures to raise private sector savings to fight the deficit meant “searching for solutions at the wrong places,” it said.
Even if these measures are implemented successfully, only a one fourth of the problem might be overcome, the report said. “To put it more clearly, some three fourths of the current account deficit derives from the budget gap.”
The Turkish government is aiming for a budget deficit of 33.5 billion liras this year, or about 2.8 percent of gross domestic product, after beating its budget goals in 2010.
Turkey’s trade deficit of nearly $61 billion is a little above the sum of a total of $43.6 billion of budget deficit and $13 billion of private sector deficit, the report noted.
“The sustainability of the current account deficit is directly related with the country’s ability to earn foreign currency,” said the report.
“From this point of view, the ratio of the current account deficit to the exports of goods and services that raise foreign exchange, tourism, construction or transportation for example, is a very important indicator.”
The report showed that the gap’s ratio to these actions stood between 25 and 30 percent before the crises in 1994, 2001 and 2008 and fell fast after the first two crisis periods.
During the recovery period after the 2008 crisis, the deficit started rising in unusual terms, raising the gap ratio with foreign currency raising activities to 37.6 percent.
The 30 percent level was critical, the report said.
The current account deficit also sharply after the 2001 crisis but it was pressured by the rapid increase in foreign currency raising actions, TEPAV said.
The drop in export incomes after 2008 played a key role in Turkey’s account gap problem, it said.
May 22, 2011
SOURCE: Hürriyet Daily News
