Historical increase in foreign exchange deficit

The Central Bank (CBRT) published today the data on 'foreign exchange assets and liabilities of companies outside the financial sector' for May 2024.

Accordingly, in May, foreign exchange assets of companies other than the financial sector decreased by $4 billion compared to the previous month, while foreign exchange liabilities increased by $10.5 billion.

Thus, the foreign exchange deficit of the real sector increased by 14.5 billion dollars to 115.2 billion dollars in May compared to the previous month.

The 11.4 billion dollar increase in the foreign exchange deficit in April was also recorded as the fastest increase in the 13-year period after January 2011. The increase in May also left April behind.

The last time the foreign exchange deficit increased by $16.4 billion in one month was in January 2011.

For the first time in 13 years, the $10 billion threshold was exceeded in the monthly foreign exchange deficit increase in April.

The deficit figure in May was also the highest in the two years since February 2022.

In the seven-month period between October 2023 and May 2024, there was an increase of $40.3 billion in the foreign exchange deficit.

ASSETS DECREASED, LIABILITIES INCREASED

When the asset distribution for the May 2024 period is examined; while deposits in domestic banks decreased by $5 billion compared to the previous month, direct capital investments abroad, export receivables and securities increased by $627 million, $388 million and $8 million, respectively, and as a result, assets decreased by $4 billion.

In the distribution of liabilities, cash loans provided domestically, cash loans provided from abroad and import debts increased by 9 billion dollars, 1.1 billion dollars and 415 million dollars, respectively, compared to the previous month, and accordingly liabilities increased by 10.5 billion dollars.

DECREASED BY 121 BILLION DOLLARS

The foreign exchange deficit of firms outside the financial sector, which peaked at $195.5 billion in March 2018 before the currency crisis, decreased to $74.9 billion in October 2023.

During this five and a half year period, when exchange rate crises and low interest rate policies were implemented, during the 121 billion dollar decrease in the foreign exchange deficit, the CBRT foreign exchange reserves were used to cover the foreign exchange deficit of the private sector, and during this period, companies using low-interest TL loans increased their foreign exchange assets and closed a part of their foreign exchange debts.

RAPID INCREASE IN FOREIGN CURRENCY LOANS

During the period when TL interest rates were kept low for political reasons, those who took out low-interest TL loans invested their money in foreign currency and gold, and those who had a foreign currency loan balance used low-interest TL loans to reduce this balance.

In this way, the foreign exchange debts of the private sector were reduced by using the CBRT reserves.

In fact, the foreign exchange credit volume, which was 182.2 billion dollars at the end of 2018, decreased to 128.7 billion dollars at the end of 2023, and the decrease in five years was 53.5 billion dollars.

With 2024, the picture changed and companies that had access to foreign currency loans began to use these loans to make import and investment payments as well as to benefit from high TL interest.

In fact, foreign currency loan volume increased by a total of $26.6 billion in the first seven months of this year after a five-year decline.

As foreign exchange loans increased rapidly, the CBRT introduced a monthly growth limit of 2 percent for these loans on May 23, 2024. In July, the growth limit was reduced to 1.5 percent.

With this restriction, those who want to borrow in foreign currency and benefit from TL interest are knocking on the doors of foreign creditors.