Turkish Economy: External Debt
Based on recent statistics Turkey’s gross external financing requirement stands at about USD 204,2bn as of October.
Compared to last year the composition has shifted reflecting financial stability and the high growth rate achieved by the country. The share of short-term liabilities have fallen to 37% while the share of trade payables have risen to 21% (Figure 1).
Regarding gross external financing requirement;
- USD 44.8bn consists of FX and TRY deposits of foreigners in Turkish banks,
- USD 43.2bn consists of trade payables (a function of Turkish export-import evolution),
- USD 23.4bn consists of short-term foreign borrowing,
- USD 52.7bn consists of short portion of long-term foreign borrowing, and
- USD 40bn consists of assumed current account deficit.
Trade payables are a function of foreign trade.
Turkey’s annual exports amount to about USD 160bn while as imports total about USD 220bn.
Re-emergence of synchronized growth in global economy helped Turkey boost its exports. Exports increased by 10% year to date. Over the years Turkey managed to increase her total trade volume significantly. Despite falling energy prices which constitute a significant portion of imports total trade has reached USD 376bn in 2017.
As Turkish businesses engaged more in foreign trade financing requirements increased in tandem. Accordingly trade payables have reached USD 43bn as of October (Figure 2).
Private Sector Liabilities
Total long term foreign borrowings of private sector amount to USD 217bn as of October (Figure 3). Of this, non-financials owe USD 106bn. The rest is carried by financial companies. Non-financials have an obligation of USD 18.8bn to cover in the next 12 month period (including both short-term borrowings and the short-portion of long-term borrowings). That amount did not change from last year.
Banks do not have any hurdle in rolling over their debt (Figure 4). Additionally diversification strategies in terms of both geography and instrument are paying off.
Short Term Debt Load
More importantly, authorities are well aware of FX and foreign borrowing related risks in Turkish economy. Therefore central bank implemented macro prudential policies at the end of 2014 aiming to extend the maturity of foreign borrowings. Consequently short term debt in private sector has fallen to USD 18.2bn as of October from its peak of USD 44.1bn at the end of 2014 (Figure 5). Central bank will further tighten FX borrowing rules. There will be strict ratios and multipliers for SMEs to be eligible in FX borrowing.
Debt composition of the real sector puts weight on longer term borrowing. That’s very reasonable since many of the financing is channeled to infrastructure type projects with good collateral. Also many foreign liability carrying firms are large conglomerates with substantial international businesses and FX inflows. At 27,7% Turkish private sector liability load compares well with peer EM countries (Figure 6).