Turkey plans to tap into $6.6 billion reserves

Turkish Treasury and Finance Minister Berat Albayrak attends a news conference in Istanbul, Turkey, on April 10, 2019. (REUTERS/Umit Bektas/File Photo)
Updated 14 May 2019

Turkey plans to tap into $6.6 billion reserves

  • Turkey’s budget recorded a 36.2 billon lira deficit in the first quarter of 2019
  • Turkey’s economy tipped into recession last year after the lira fell sharply

ANJARA: Turkey is working on legislation to transfer the Turkish Central Bank’s 40 billion lira ($6.6 billion) legal reserves to the government’s budget, three economic officials have told Reuters.

The country’s budget, the sources claimed, are much deeper in deficit than had been expected, prompting the move. It is unclear when a draft law would reach parliament, though one of the sources said it could happen “soon.”

Turkey’s economy tipped into recession last year after the lira fell sharply. The currency is now under pressure partly due to worries over the bank’s depleted foreign exchange reserves, meant to defend against another crisis.

Separate to foreign exchange reserves, “legal reserves” are what the central bank sets aside from profits by law to be used in extraordinary circumstances. At the end of 2018, they stood at 27.6 billion lira, according to the bank’s balance sheet data.

A second source with knowledge of the matter said last year’s “legal reserves” combined with this year’s amounted to the 40-billion lira figure, which was cited by all three people who spoke to Reuters.

“The Turkish Central Bank has around 40 billion lira in legal reserves. The transfer of this amount to the 2019 central administration budget was seen as suitable. This step aims at improving and strengthening the budget,” the second source said.

It remains unclear how much of the reserves would ultimately be transferred and what, if any, new requirements would apply to the bank.

Officials from the bank and the Treasury could not immediately be reached for comment.

The transfer would mark the second recent move by Ankara to tap the bank’s funds to boost its budget. In January, it transferred some 37 billion lira in profits to the Treasury three months earlier than scheduled.

“I do not remember the use of legal reserves before. This method came up to stop further deterioration of the budget,” the first source said.

“There needs to be legislation to transfer the bank’s legal reserves. The new legislation is planned to be presented to parliament soon.”

Turkey’s budget recorded a 36.2 billon lira deficit in the first quarter of 2019, according to Treasury and Finance Ministry data. The deficit is expected to reach 80.6 billion lira by the end of 2019, not taking the possible tranfer into account.


$8bn blow to Erdogan as investors flee Turkey

Updated 09 July 2020

$8bn blow to Erdogan as investors flee Turkey

  • Overseas holdings in Istanbul stock exchange are at lowest in 16 years

ANKARA: Foreign capital is flooding out of Turkey in a massive vote of no confidence in President Recep Tayyip Erdogan’s economic competence.
Overseas investors have withdrawn nearly $8 billion from Turkish stocks since January, according to Central Bank statistics, reducing foreign investment in the Istanbul stock exchange from $32.3 billion to $24.4 billion.
As recently as 2013, the figure was $82 billion, and foreign investors now own less than 50 percent of stocks for the first time in 16 years.
“Foreign investment has left Turkey for several reasons, both internal and external,” Win Thin, global head of currency strategy at Brown Brothers Harriman, told Arab News.
“Externally, investors fled riskier assets like emerging markets during the height of the coronavirus pandemic. Some of those flows are returning, but investors are being much more discerning and Turkey does not seem so attractive.”
In terms of internal factors, Thin said that Turkish policymakers had made it hard for foreign investors to transact in Turkey. “This includes real money clients, not just speculative.
“By implementing ad hoc measures to try and limit speculative activity, Turkey has made it hard for real money as well. Besides these problems, Turkey’s fundamentals remain poor compared to much of the emerging markets.”
Erdogan allies claim international players are manipulating the Istanbul stock exchange through automated trading, and have demanded action to make it difficult for them to trade in Turkish assets.
Goldman Sachs, JPMorgan, Merrill Lynch, Barclays and Credit Suisse were banned this month from short-selling stocks for up to three months, and this year local lenders were briefly banned by the banking regulator from trading in Turkish lira with Citigroup, BNP Paribas and UBS
JPMorgan was investigated by Turkish authorities last year after the bank published a report that advised its clients to short sell the Turkish lira.
MSCI, the provider of research-based indexes and analytics, warned last month that it may relegate Turkey from emerging market status to frontier-market status because of bans on short selling and stock lending.
With the market becoming less transparent, overseas fund managers, especially with short-term portfolios, are unenthusiastic about the Turkish market and are becoming more concerned about any forthcoming introduction of other liquidity restrictions.
The exodus of foreign capital is likely to undermine Turkey’s drive for economic growth, especially during the coronavirus pandemic when employment and investment levels have gone down, with the Turkish lira facing serious volatility.