On February 11 the Central Bank of Turkey (TCMB) released its balance of payment figures through December 2015, thus providing a clearer picture of how developments in the global economy as well as in domestic politics impacted the Turkish economy last year.

As the chart shows, the influx of foreign funds into Turkey tapered off considerably in 2015. Following successive yearly net inflows of 70.3, 72.7 and 43.2 billion U.S. dollars since 2012, the TCMB reported an inflow of only 10.7 billion in 2015. The data also shows that Turkey witnessed an outflow of 15.4 billion in funds from stock and portfolio investments, particularly short-term funds–often referred to as ‘hot money’–which move from country to country lured by attractive interest rates. In the absence of capital inflow at the level of previous years, other sources helped to fund the lower current accounts deficit (CAD) in 2015. According to the TCMB, 9.7 billion in net errors and omissions–unsourced capital on the balance sheet yet to be explained–and 11.8 billion in foreign currency sales from TCMB reserves, accounted for over two thirds of the 32.2 billion CAD.

Foreign direct investment (FDI) climbed to 16.6 billion in 2015 while net foreign direct investment in Turkey–the amount invested by foreigners in the economy minus Turkish funds sent abroad–which had risen to around 20 billion in both 2006 and 2007 but fallen to 5.5 billion in 2014, more than doubled to 11.5 billion. However, the Spanish bank BBVA’s acquisition of an additional 15 percent holding of Garanti Bank, a deal which had been announced in 2014, and Goldman Sachs’s acquisition of a 13 percent stake in the Turkey unit of SOCAR, the Azerbaijani state energy company, which, according to its CEO, would be used largely to pay off debts from earlier projects, accounted for 3.5 billion of the FDI total. A further 4.2 billion classified as FDI was in real estate.

Additional TCMB data released on February 16 shows that the total private sector external debt increased from 282.8 billion in 2014 to 297.7 billion in 2015, of which 60 percent was in dollars. 100.8 billion of this was short-term debt (due within one year) and 49.9 billion of the long-term debt is scheduled to mature by December 2016. While the increased borrowing has continued to contribute to growth through domestic consumption and construction sector activities, the TCMB noted that exchange rate fluctuations had added 7.5 billion to the cost of the debt based on the loss in the value of the Turkish Lira (TL) at the end of 2015.

Overall the TL lost 25 percent against the U.S. Dollar during the year. Having begun 2015 at 2.33 and fallen to 2.66 on June 5, the TL fell further to 2.75 following the June 7 elections in which the governing Justice and Development Party (AKP) lost its majority in parliament. After falling below 3.00 in September, the TL stood at 2.92 on October 30 but strengthened briefly to 2.83 the day after the November 1 elections in which the AKP regained its parliamentary majority. However, the currency again trended negative in spite of the stability promised by a return to single party government, finishing the year at 2.92 and as of February 23 it was trading near 2.94. With the falling TL, inflation reached 9.6 percent year-on-year between January 2015 and January 2016.


Despite the weaker TL, the TCMB balance of payment release shows that Turkish export levels averaged over a billion dollars less per month than in 2014, reaching only 143.9 billion, below the 2015 target of 158.5 billion. This was partly due to a nearly 40 percent decline in exports to Russia. Imports to Turkey also dropped 34.9 billion to 207.2 billion in 2015, to a great extent because of the sharp decrease in global energy prices which reduced Turkey’s annual energy import bill by 17 billion. It is interesting to note that this did not necessarily translate into cheaper energy prices in Turkey as gasoline prices–which are subject to a 66 percent state tax–fell only 6 percent on average while electricity prices decreased slightly, but increased 6.7 percent in industrial areas and 3.8 in residential areas on January 1, 2016. Overall the Ministry of Finance reported 51 billion TL in revenues from energy products in 2015 compared to 45.6 billion TL in 2014.

The TCMB data also shows that the overall number of tourists to Turkey declined by 258,000 in 2015. The number of travelers from Russia–Turkey’s second largest source of visitors behind Germany–decreased by 830,000 while visitors from Europe declined by 288,000. Separate data from the Turkish Statistical Institute shows that tourism revenues–which financed more than half of Turkey’s CAD in 2014–went down from 34.3 billion to 31.5 billion in 2015, which translates to a decrease of $756 spent per tourist in 2015 from $828 in 2014. On February 22 2016, Prime Minister Ahmet Davutoglu noted the “problems in the tourism sector due to the tensions with Russia and severe developments in the neighboring region” and announced a 97.6 million dollar loan and debt relief package for the tourism sector which has been badly affected by the suicide bombings.

On the same day that the TCMB released the balance of payment data for 2015, President Recep Tayyip Erdogan focused on growth as he reviewed the performance of the Turkish economy. He noted that it was “nearly certain that the total growth rate for 2015 was at 4 percent” and continued “at a time when developed economies are growing at 2 percent, the fact that Turkey despite all the troubles has hit the 4 percent growth rate is very important.” The AKP had come into office under Erdogan’s leadership in the aftermath of the 2001 crisis with its promise of economic recovery and the perception of sustained improvement has been undergirding its electoral success throughout its long tenure. Consequently, in 2016 the AKP will be continuing to search for a magic formula through which issues relating to capital inflow and debt can be addressed, even as it seeks to control inflation and maintain economic growth, while simultaneously delivering on the promises to its supporters which helped it to regain its parliamentary majority in November.

Craig Bonfield

Research Associate, Turkey Project