Turkey struggles to plug deficit 

Turkey struggles to plug deficit 

Turkey may sell as much as US$8 billion in debt, according to a regulatory filing in Washington, a sign Ankara may be preparing to boost borrowing to address a growing budget deficit.

But economic confidence in Turkey is at its highest since the end of 2015, underscoring the economy’s growing resilience following a series of political and security crises over the last two years.

A study of business and household sentiment compiled by Ankara’s statistics office gained 1.1 points to 100.5 in May. It is the best level since November 2015 and the fifth consecutive month of increase.

The economy has rebounded powerfully after a third-quarter contraction in 2016 which marked its lowest point since the financial crisis. GDP growth has since recovered to gain 3.5 per cent in the last three months of the year.

May’s improvements in sentiment was driven by improvements in consumer services, retail and construction, reported Turkstat.

On the fiscal front, Turkey may offer securities from “time to time in one or more offerings” for financing purposes, which may include the repayment of debt, according to the US Securities and Exchange Commission.

Ankara has increased spending to bolster growth leading to fears that it may miss its 1.7-per-cent 2017 budget deficit target by as much as 1 percentage point. The government has already sold US$6.25 billion of foreign currency debt so far this, exceeding the target for the whole year. Observers are also saying domestic borrowing plans until July suggest lira debt sales will exceed redemptions during 2017 for the first time since 2009.

The bond market, however, has seen a surge in foreign demand after the central bank’s efforts to address the falling lira declines led to a currency rally and drove yields above 11 per cent, creating one of the top carry-trade opportunities on global markets. The government debt-to-GDP ratio was around 30 per cent at the end of last year, about half its level in 2006 and comparing favourably with most similar countries.

“Timing is not that bad,” said Dmitri Barinov of Union Investment Privatfonds in Frankfurt, citing calm in markets and a decline in the cost of Turkish credit default swaps. “The newly issued Turkey ’47 is trading at highs in price, so it seems like markets like the credit right now.”

Turkey’s dollar bond due in May 2047, was issued earlier this month.

Bogazliyan sugar factory. Picture credit: Wikimedia


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