ISTANBUL: Turkey’s current account deficit narrowed more than expected in September and along with budget data showed the country was on course to meet its year-end targets, Finance Minister Mehmet Simsek said on Thursday.
The data gave fresh encouragement to the government after it regained an investment grade credit rating last week from Fitch Ratings.
Turkey was the fastest growing economy in Europe last year, expanding 8.5 per cent, and gross domestic product growth this year is seen slowing to 3.5 per cent as domestic demand eases.
The positive economic picture has long been overshadowed by a gaping deficit in the current account, which amounted to 10 per cent of GDP last year and is seen narrowing to 7.3 per cent this year as the economy slows.
In September, it stood at $2.697 billion, well above a revised $1.51 billion a month earlier but down sharply from $6.4 billion in the same period a year ago, central bank data showed. In a Reuters poll, economists forecast a $3 billion gap.
Between January and September the deficit dropped to $39.281 billion from $60.466 billion the previous year. The government has forecast a full-year deficit of $58.7 billion.
“The current account deficit is continuing to decline in line with the balancing out of foreign trade as the Turkish economy experiences a soft landing,” Simsek said in written comments sent to Reuters.
The data will be closely watched by the other two major rating agencies, Moody’s and Standard & Poors, who rate Turkey below investment grade. Turkey needs at least one of them to follow Fitch’s lead for it to join benchmark investment grade bond indexes, a status many funds require before investing.
“The improvement is important as Moody’s/S&P - a key market focus at present - have indicated that they want to see further evidence of rebalancing if they are to move to follow Fitch and award Turkey the prized second investment grade rating,” said Timothy Ash, head of emerging markets research at Standard Bank.
There was little reaction to the data from financial markets, which were broadly firm. The lira gained to 1.8012 against the dollar from 1.8054 late on Wednesday, shares were up 0.2 per cent while the benchmark bond yield was little changed at 6.4 per cent.
Data released on Thursday also revealed a budget deficit of 4.4 billion lira ($2.4 billion) in October, widening from a deficit of 1.9 billion lira a year earlier but down from 5.8 billion a month earlier.
Simsek said the figures, which showed a 10-month deficit of 18.8 billion lira, were in line with the government’s medium-term Programmememe (MTP) which anticipates a full-year deficit of 33.5 billion lira. The deficit generally widens in the final months of the year. “The 2012 figures show we are on course to meet our year-end budget targets set out in the MTP,” he said.
“We will shape our fiscal policies in the period ahead without giving ground on fiscal discipline,” he said.