Mahfi Eğilmez explains balance of payments: 'Unidentified money inflow'

Economist Mahfi Eğilmez explained the balance of payments in his column. Eğilmez, who also compared Turkey's economic situation in 2023 and 2024, discussed foreign capital investments as well. 

Eğilmez's article is as follows:

"The balance of payments, in its broad definition, is a statistical report prepared to obtain systematic records of the economic transactions that residents of one economy carry out with residents of other economies within a given period. What matters here are the transactions that persons resident in Turkey carry out with persons resident in other countries. The currency used in these transactions or the nationality of the persons carrying out these transactions is not important.

The most important sub-balance of the balance of payments is the current account balance. It covers trade in goods and services (exports and imports) included in the balance of payments accounts, as well as primary and secondary income accounts[i]. In the current account, if revenues exceed expenditures, there is a current account surplus; if expenditures exceed revenues, there is a current account deficit.

The latest available data are for February 2024. Accordingly, the 12-month current account deficit stood at 31.8 billion dollars. In other words, as a result of the trade, service purchases and service provision carried out by persons resident in Turkey with persons resident in foreign countries, Turkey ran a deficit of 31.8 billion dollars over the 12-month period. In February 2023, the 12-month current account deficit was 56.4 billion dollars. Accordingly, we can say that Turkey's current account deficit has entered a serious decline.

The table below presents balance of payments data comparatively (Source: TCMB)

According to the table, the current account deficit has fallen to 30 percent of the current account deficit in the first two months of last year. This is a positive development. More positive is that this decline was achieved not only through an increase in exports or an increase in primary income, but also through a fall in imports. However, it should be noted that the restriction imposed on gold imports also had a serious effect on the decline in imports. 

MONEY INFLOW WHOSE ORIGIN COULD NOT BE IDENTIFIED

There is a decline in foreign direct investment. Direct investments, which were 1,616 million dollars in the first two months of 2023, have fallen to 1,150 million dollars in the first two months of 2024. By contrast, portfolio investments (whose main item is the stock market) have risen from 2.1 billion dollars to 8.1 billion dollars. From this, we can say that foreign investors' appetite for investing in Turkey has increased, but that this increase in appetite is directed not at long-term investments but at shorter-term investments.

In the first two months of 2023, there was a positive net errors and omissions item of 1.4 billion dollars. In other words, during that period there was an inflow into Turkey of 1.4 billion dollars whose origin could not be identified. In the first two months of 2024, however, we faced a negative net errors and omissions figure of 6.9 billion dollars. In other words, in the first two months of 2024 there was an outflow from Turkey amounting to 6.9 billion dollars, from where and how it left could not be identified.

LESS MONEY SPENT ON THE CURRENT ACCOUNT DEFICIT COMPARED WITH 2023

While Turkey spent 14 billion dollars of its reserves to finance its current account deficit in the first two months of 2023, it spent 12.4 billion dollars in the first two months of 2024. The decline in the current account deficit also reduces the amount of reserves used for financing purposes.

To sum up, the decline seen in the current account deficit in the first two months points to a positive development in terms of the foreign-exchange position and external financing requirement. On the other hand, this decline also amounts to a preliminary signal that growth will slow. The decline in Turkey's imports, given that it has to import a significant amount of inputs in order to produce, can also be taken as an indicator of the decline that has begun in production."

News Source: 12punto