Two-thirds of Turkey’s current account deficit funded by ’informal’ inflows

The Central Bank shared the current account deficit data for July and the first seven months of the year. In July, the current account deficit exceeded expectations and reached $ 4 billion. According to the Central Bank’s data, the current account deficit increased by 168 percent in the first seven months of 2022 compared to the same period last year and amounted to $ 36.67 billion. The current account deficit in July exceeded expectations of $ 3.6 billion.

According to the data, while a net increase of $ 4.42 billion was observed in official reserves in July, net inflows from direct investments amounted to $ 252 million. Portfolio investments also recorded a net outflow of $ 631 million in July.

INFLOW OF UNCERTAIN ORIGIN

At a time when the current account deficit has reached the peak of the last year and a half, the increase in foreign exchange reserves attracts attention. According to the Central Bank’s data, in the first six months of 2022, approx. 24.35 billion dollars of uncertain source money entered Turkey. Of this, approx. 5.47 billion dollars is the figure that entered in July alone. The data is based on the ‘net error and omission’ item, which shows money inflows and outflows of uncertain origin.

This item is generally due to measurement errors and incomplete or excessive compilation of the data in the table. As a procedure, the MB (Central Bank) should equalize the account after a while, identify the source of currency inflow and transfer it to the relevant item, but this has not been practiced for a long time; economists consider this suspicious.