The Turkish Statistics Institute (TurkStat) announced FT figures on Monday, providing much relief and hope for policy makers and all others keeping their fingers crossed for a ratings upgrade sooner rather than later. It said the FT deficit dropped by more than a quarter to $7.34 billion in March from $9.83 billion the same month last year. With the addition of the latest figures, the quarterly gap became $20.32 billion, down from $24.65 in the first three months of 2011.
The three largest international credit rating agencies, Standard & Poor's, Moody's and Fitch, have pointed fingers at the country's current account deficit (CAD), mainly deriving from an imbalance between its exports and imports in favor of the latter, as the main reason preventing them from increasing Turkey's rating to investment grade. Now that the national economy has proved well able to continue growing while producing a smaller FT deficit, and consequently a smaller CAD, it is only a matter of time for those agencies to make what is now a widely expected move. “They can now no longer turn a blind eye to suggestions -- on which almost everybody agrees now -- that Turkey deserves a better grade,” Selim Işıklar, a financial analyst from İstanbul-based Info Investment, wrote for the Turkish Zaman daily on Sunday.
Moody's rates Turkish credit Ba2, two notches below investment grade, with a positive outlook. Standard & Poor's rates the country an equivalent BB, also with a positive outlook, and Fitch ranks Turkey as BB+, just one notch below investment grade.
In March, TurkStat said, exports increased by 12.2 percent year-on-year to become $13.25 billion -- the highest monthly figure in the history of the modern republic -- whereas the value of goods it purchases from overseas decreased 4.8 percent to $20.59 billion.
The reduction came as a result of a much weaker lira against major currencies the euro and the dollar -- which gave Turkish goods a price advantage in international markets, while making foreign goods more expensive domestically -- as well as the government's efforts to diversify export markets in line with its centennial goal of having $500 billion in revenue from sales overseas by 2023.
“The reason for the positive developments in our foreign trade was the increases observed in our exports. Our exporters have shown notable progress in alternative markets while maintaining their presence in the European Union,” Economy Minister Zafer Çağlayan said in a written statement his ministry released after the FT numbers were announced on Monday.
The FT deficit used to be a highly problematic issue for Turkey, which relies on foreign supplies for nearly all of its energy needs and whose industries are also heavily dependent on foreign intermediate goods to keep their wheels turning. This gap grew to a barely sustainable level for the country as it outpaced almost all world nations in economic growth in the past two years. The deficit spiked from $39 billion in 2009 -- when the Turkish economy contracted by nearly 5 percent -- to $72 billion in 2010, when the economic growth rate was at 8.9 percent. It soared to $105 billion, or some 13 percent of the national gross domestic product (GDP) last year, when the national economy grew by 8.5 percent again.
The widening gap caused much concern last year because it caused the country's foreign reserves to constantly bleed out and could eventually disrupt Turkey's balance of payments as it also led to a high CAD. To address this issue, the Central Bank of Turkey teamed up with the government to add monetary measures on top of the administration's fiscal measures last year. Whereas the bank aimed to slow down credit expansion and the weakening of the lira against the euro and dollar, the government imposed higher taxes -- in the form of what is called the private consumption tax (ÖTV) in Turkey -- on certain goods such as cars and mobile phones, as well as tobacco and alcoholic beverages, to cut imports.