Significant increase in short-term debts

As the debt statistics of this year have begun to be announced, it can be observed that especially short-term foreign borrowings have gained speed to a great extent. It was revealed that Turkey’s short-term foreign debt stock increased by $6.6 billion only in January. Though $1.1 billion of it came from exchange rate effects, the remaining $5.5 billion of increase is still very high for a single month.

It is underlined that the most important cause of this increase in foreign debts is “the stability achieved in exchange rates” as a result of the implemented policies. This stability evidently makes the decision-makers foresee their future; but prevention of the fluctuations in exchange rates despite the fluctuated rates also causes such results.

Since the domestic resource costs are considerably high, banks and real parties tend to meet their resource needs outside the country. Despite the reduction in interest, the Central Bank’s domestic policy to balance the markets with required reserve increase is one of the causes of this result.

While reducing interest to balance the domestic demand, the Central Bank also tries to slow down the credit speed by increasing the required reserve ratio and the costs. For this reason, the banks prefer to focus on the export of bonds and take loans from outside rather than collecting deposits. With this method, the Central Bank also increases the foreign currency reserves of the country through banks.

The “non-classical monetary policy,” of the Central Bank, which has been much acclaimed recently, also has such results.

[HH] A critical process

The increase in short-term debts has begun to become a factor that triggers anxieties in markets because there are some signs indicating that the economy has been revived since the beginning of this year. Along with that, it is estimated that an increasing trend is approaching again in the foreign trade deficit and current account deficit

With the effect of the long election process ahead of us, and as can be seen from the increased primary expenditures in the budget in January, it is highly expected that the increase in expenditure will not be limited and thus the domestic demand could be increased.

Due to this state of affairs, a problematic process is expected ahead. Also, rising domestic interest with the increase of bond yields in the U.S. also represents this anxiety.

Consequently, comments such as, “the best in terms of economic balances were left behind,” have begun to be seriously discussed in markets.

In return for the $6.6 billion increase in short-term debts, the long-term foreign debts of the private sector increased by $1.5 billion in January, reaching a total of $138.7 billion. And it was mostly caused by the exchange difference.

Also, it was revealed that the total foreign debt cost Turkey has to pay in a year is $149.6 billion, while 87 percent of this debt will be paid by the private sector. The busiest months in this regard will be April, May, July and September.

To sum up, foreign debt increase might create serious problems in the following periods.