TurkStat announced October foreign trade data yesterday. The Ministry of Trade announces monthly foreign trade data earlier, based on provisional customs data. Therefore, TurkStat’s data comes from behind; in this sense, there is no new news in foreign trade. But my purpose in this article is not to analyze what happened in October, but to briefly analyze the historical foreign trade data, now that the Central Bank announced the Investment Commitment Advance Loan (YTAK) on November 23 and the Minister of Treasury and Finance stated that the main purpose of this loan is to reduce the current account deficit permanently.
In each quarter between the first quarter of 1996 and the third quarter of 2023, the ratio of the total foreign trade deficit of the last four quarters to the total GDP of the last four quarters is 8.35 percent on average. The ratio of the total foreign trade deficit of each quarter to the GDP of the last year is 2.04 percent on average. In other words, there is a foreign trade deficit of 2 percent of the annual GDP in just one quarter (on average). This is very high. Excluding gold and energy, the same ratio drops to 0.86 percent.
The foreign trade deficit decreases during crisis years and also during the pandemic. Pay particular attention to the more pronounced feature in the ratio of the total foreign trade deficit to GDP: The deficit oscillates up and down around an average of 2.04 percent. There is no clear improvement or deterioration trend. As expected, it follows a movement roughly in line with GDP growth cycles.
Clearly, these data express the fundamental structural problem of the Turkish economy. We can grow by running a high foreign trade deficit. In other words, we have a growth structure dependent on foreign debt. In the absence of external financing, our economy either grows at a low rate or contracts. We need to change this picture. But for the reasons I mentioned in my previous article, it is not possible to change this picture with low-interest investment loans alone. Without designing an industrial policy that will increase productivity and without linking that policy to green transformation, this cannot be done with interest rates alone.
The total foreign trade deficit is literally exploding from the last quarter of 2021. The main reason is that the ultra-low interest rate policy, which is not rational, explodes gold imports. Another reason is that the same policy, combined with high credit growth, spurred imports. However, during the interest rate cut process that started in September 2021, we mortals were told that the external deficit would be reduced by increasing Turkey’s competitiveness. Unfortunately, the external deficit exploded rather than decreasing. But let’s not be misunderstood: A low interest rate on the YTAK loan is not the same as a low interest rate policy. The latter is an irrational policy. The first one, on the other hand, could (could) be rational if implemented with the right industrial policy and through banks rather than the Central Bank. There is still time to design such a comprehensive industrial policy.