Turkey Minister Sees Smaller Current Account Gap, Tourism Uptick

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Turkey’s current account deficit will narrow by about a third from current levels by the end of the year with tourism expected to recover thanks to a vaccination drive, Treasury and Finance Minister Lutfi Elvan said in an interview.

The gap is expected to narrow to between $22 billion to $25 billion in December from around $36 billion in March, Elvan said late Monday as the government counts on growing inbound travel to Turkey starting next month. This is when authorities are planning to ramp up vaccinations, with the arrival of 30 million doses from Pfizer-BioNTech.

Foreign visitors from important markets for Turkey such as the U.K. and Russia have not yet listed it as a safe destination due to infection levels.

Q&A: Turkey’s Treasury and Finance Minister Comments on Economy

Last year Turkey posted its largest current-account gap since 2017, when government-backed credit expansion boosted demand for imports while exports were subdued due to the pandemic.

Elvan said economic recovery in Europe -- where roughly 41% of Turkish exports go -- and a slump in gold imports from last year, will further boost Turkey’s foreign trade balance and allow it to meet borrowing targets comfortably.

“We do not see any problems with the balance of payments. We intend borrow less than projected in our 2021 borrowing program,” he said.

Inflation Fight

Appointed in November, Elvan replaced Berat Albayrak, President Recep Tayyip Erdogan’s son-in-law, as the nation’s treasury and finance minister in an unexpected overhaul. Four months after the shift, Erdogan fired Naci Agbal, the central bank’s third governor in less than two years, after a bigger-than-expected increase in interest rates.

The lira has lost about 14% against the dollar since the latest shake up at the monetary authority, compounding the impact from rallying import prices. Consumer inflation accelerated for a seventh month in April to exceed 17.1%, compared with the official target of 5%.

“The fight against inflation is one of our main priorities” Elvan said. The government will take into account inflation when making fiscal decisions and might opt for “macro prudential measures” if credit expansion is thought to pose additional risks, he added.

Turkey relied on a credit explosion led by state lenders to keep consumers and businesses afloat during the early Covid-19 lockdowns. This led to economic growth and the government avoided tapping its own coffers at the levels of other G-20 nations that provided stimulus to businesses. But it also fueled imports, weighed on the current-account gap and eventually fueled inflation.

Elvan said the “burden of the pandemic” on the central government budget has been close to 79 billion liras ($9.4 billion) since last year. Another 40 billion liras will be spent through 2021, bringing total direct aid to 109 billion liras. Turkey will have injected more than 3% of its gross domestic product into the economy as pandemic relief, when taking into account funds from institutions such as the government’s unemployment fund, Elvan said.

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