Money inflows of unknown origin headed for record in Turkey
As Turkey’s current account deficit continues to widen in the coming months, foreign currency inflows of unknown origin might end up covering more than 70% of the gap.
Inflows of $17.5 billion from unknown sources covered more than half of Turkey’s current account deficit in the first half of the year — and the rate could reach a record level in the coming months, underscoring how acute the country’s need for foreign investments has become.
Turkey’s current account gap widened to $32.4 billion in the first half of the year, reflecting its worsening trade imbalance due to a global rise in energy and commodity prices on top of the depreciation of the Turkish lira. Official data indicate that inflows of foreign funds, including direct and portfolio investments, were enough to finance only 8% of the gap, while 38% was met through central bank reserves and a whopping 54% by inflows of unknown origin.
A significant part of those inflows — recorded in the “net errors and omissions” category in the balance of payments — stems from legitimate foreign currency funds that the private sector holds abroad for various reasons and brings home out of necessity or to take advantage of some favorable condition or because of compelling government measures. This category reflects also the illicit movements of money earned from criminal activities, but naturally, their amount is hard to tell.
Judging by leading foreign trade data, Turkey’s current account turned up a deficit of some $4 billion in July, which would bring the cumulative deficit to at least $36.5 billion in the first seven months of the year. It is likely to reach $40 billion to $45 billion by the end of 2022, and inflows of unknown origin appear headed for a record rate in financing the gap.
