Turkey’s Current Account Under Pressure from the Syrian Effect

Turkey’s Current Account Under Pressure from the Syrian Effect

Turkey’s current account deficit–-long an Achilles heel for the emerging economy– is coming under pressure from a new and controversial source: Syrian refugees.

Monthly data from Turkey’s central bank has for more than two years classified the estimated 600,000 Syrian refugees sheltering in Turkey as ‘tourists’ and calculated an estimate of their ‘spending’ as tourism revenue.

But according to a recent methodology change, Syrian refugees–the majority of whom live in sprawling camps and are reliant on government handouts to survive–are no longer classified the same as a German tourist in Antalya. Unsurprisingly, the impact of the change can be seen clearly in the current account numbers.

Data on Wednesday showed Turkey’s current account deficit widened to $3.28 billion in September from $2.66 billion a year earlier; significantly above economists’ expectations for a slight narrowing of the finance gap to $2.6 billion. Economists said the bigger-than-expected number was due to a 7% fall in net tourism revenues equivalent to $1.3 billion in year to date – ‘the Syrian effect’.

The current account surplus increases when products and services are sold ‘abroad’, including to tourists. Counting Syrians as, effectively, domestic consumers means their spending can no longer be counted as an export.

“In particular, Syrian citizens (mostly refugees) coming to Turkey are now excluded from the tourist arrivals and hence tourism revenues were revised down. This surely presents a better picture of the tourism income,” said Yarkin Cebeci, an economist with J.P. Morgan Chase in Istanbul.

The revision represented a small slice of overall tourism revenues; an important source of external financing for Turkey, which is dependent on foreign inflows to fund its wide current account deficit. In the nine months to September the current account deficit rose to $49 billion, 28% wider than in the same period a year earlier. Turkey’s 12-month current account deficit had risen to $59.1 billion in September, corresponding to 7.2% of its gross domestic product.

Despite the downward revision to not include Syrians, September numbers showed Turkey’s tourism sector was still performing well, underlining the resilience of a sector forecast to take a hit after a summer of anti-government protests. Data showed tourism revenues were $3 billion in September, bringing first nine-month revenues to $17.8 billion.

Tim Ash, chief emerging markets economist at Standard Bank in London said Turkey was likely adjusting to the idea that the refugees would be in Turkey for a longer time than initially envisaged and the revision did not change the overall picture of the deficit.

“I don’t really see anything particularly sinister in this and I don’t think it changes the big picture. The current account deficit is still too big, period,” he said.

The move to no longer classify Syrians as tourists comes as Turkey’s policy on Syria has become increasingly unpopular amid fears that radical Islamists are gaining a foothold close to Turkish territory.

Turkey’s Emergency Relief Agency AFAD provides constant updates of the number of refugees on Turkish territory but has so far been vague about how much that support has cost. Foreign minister Ahmet Davutoglu said in September that Turkey’s government had spent some $2 billion on aiding refugees since the Syrian conflict erupted at the beginning of 2011, but no breakdown of those figures has been provided.

Some economists said the government made the right call by changing the figures, but stressed that refugees are also contributing to growth.

“This is the right step because this was an extraordinary situation to include Syrian refugees in the numbers as tourists,” said Ugur Gurses, economist and columnist at Turkish daily Radikal. “Despite their cost, refugees are also contributing to economic growth, although its impossible to calculate.”

Kerim Karakaya and Yeliz Candemir




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