Why has the current account deficit broken a record in Turkey? – Nezih Onur Kuru

The government says it has recently followed an export-based model of the economy. The depreciation of the Turkish lira against foreign currencies is presented as a strategic move under this model. He asserts that the depreciation of the lira will reduce imports, provide a benefit to exporters, pave the way for foreign exchange inflows into the country’s economy, and that the economic model focused on production and export can be maintained. The low interest rate policy is also legitimized in this context.

In the ruling media, the fact that exports reached 60 billion 201 million dollars in the first quarter of 2022 (January-February-March), up 20.6% compared to the first quarter of 2021, was touted as a big success. However, it is clear that there is no success in the external trade balance and the current account deficit. While exports increased by 20.6% in the first quarter of 2022, imports reached 86 billion 607 million dollars with an increase of 42%. Thus, the foreign trade current account deficit broke the record of the last 8 years and reached 26 billion 406 million dollars.

Foreign trade balances after 2018

After the 2018 elections, when imports declined with the exchange rate shock resulting from the Brunson crisis, the foreign trade current account deficit entered a downward trend. Although the government, which claims to follow the Chinese model, is pleased with the reduction in the current account deficit, the drop in imports was in fact the result of the stagnation that emerged with the exchange rate shock, not the result of the so-called manufacturing approach to the Turkish economy. Although the government claimed to reduce the current account deficit and grow with a production-based economy, the shrinking current account deficit was closely linked to the shrinking economy.

From the second half of 2018, the cost of the exchange rate shock made imports more difficult on the one hand, and made it easier for exporters on the other. As the recession continued in the markets with the effect of the pandemic, the demand for imports continued to decline and the current account deficit narrowed until 2022. However, it should be pointed out that the current account deficit current has not closed in any quarter and that after the 2019 crisis, it again exceeded the limit of 10 billion dollars.

Current account deficit in 2022

Analyzing the figures for the first three months of 2022, it appears that the foreign trade balances could not withstand the exchange rate shock in 2021. According to quarterly data (3 months), the current account deficit in Turkey broke the record of the last 8 years in the first three months of 2022. In the period January-February-March, the difference between imports and exports amounted to $26.4 billion. This figure is the highest level of current account deficit measured since January 2014.

Why is the current account deficit growing?

Turkey is a country that cannot make a breakthrough in terms of manpower and production quality. Since governments have preferred electoral economics, they have failed in long-term structural reforms in areas such as law, education, technology, agriculture, finance, and finance. Turkey is paying the price for this approach with import dependency and inefficient production. In this vicious circle, a permanent increase in well-being cannot be achieved in Turkey.

Moreover, since the recent authoritarianism does not increase the governance power of the state, but nepotism and tyranny, the good management of resources cannot be ensured. On the one hand, Turkey ceases to be the address of foreign investors due to its backwardness in terms of law and democracy, and cannot bring new technologies to the country. On the one hand, Turkey ceases to be the address of foreign investors due to its backwardness in terms of law and democracy, and cannot bring new technologies to the country. Moreover, Turkey has now become a country causing a brain drain, attracting cheap labor from neighboring countries in return, selling its assets and citizenship for profit, and the league has fallen.

The share of high-tech products in a country’s exports is an important criterion that shows the well-being and governance capacity of that country and reflects the production of these factors. Moreover, it is a factor that increases the efficiency of foreign trade and can increase the current account deficit.

When comparing Turkey with countries at similar levels in the 2000s, such as Malaysia, Korea, Mexico, Hungary, Poland and Indonesia, we see that the share of high-tech based exports remains at a very low level of 3% compared to other countries. Turkey has a long way to go to overcome the current account deficit problem and transform itself into a country capable of value-added production.

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