TR will need est. $130 Billion in 2009

Significance
For the first time in 2008, Turkey's current-account deficit in September narrowed as compared to a year earlier. Despite the modest improvement, the current-account gap in the first three quarters as a whole remained significantly larger than it had been in the same period of a year earlier.
Implications
The stalling of domestic demand has helped reduce import demand. Meanwhile, the fall of global demand has not had an immediate impact on export growth. Exports have been buoyed somewhat by an increased competitiveness on the international market as the lira has lost ground against the euro and dollar. Additionally, the country benefited from a stronger-than-expected tourism season, which boosted service exports.
Outlook
The improvement noted in September is not expected to continue throughout the final quarter. There may be some narrowing in the current-account deficit, but not to the degree seen in September. Export growth will not remain as elevated as it was in September, and in fact is expected to slow quite decisively. As such, we continue to believe that for the year as a whole, the current-account deficit will reach nearly 7% of GDP.

In September 2008, Turkey's current-account deficit fell to US$914 million, nearly US$1.4 billion less than it had been a year earlier, according to data from the Central Bank of the Republic of Turkey. It was the first month in 2008 that the current-account shortfall had been lower than the corresponding month of 2007. Despite the narrowing of the gap in September alone, the cumulative current-account shortfall was still substantially larger in the first three quarters of 2008, US$35.362 billion, than it had been in the same period of 2007, US$26.074 billion. In 2007 as a whole, Turkey's current-account deficit was nearly US$38 billion, or 5.8% of GDP.
The primary cause for the September improvement in the current-account balance was a narrowing of the merchandise trade deficit to US$3.404 billion, a US$600 million smaller gap than a year earlier. A sliding lira made Turkish exports more competitive. That month, exports surged ahead 42.0% y/y to US$13.687 billion. The stronger September gain pushed export growth for the first three quarters as a whole up to 36.2% y/y, totalling US$112.009 billion. Meanwhile, merchandise import growth slowed, despite remaining extremely vigorous. In September, imports increased 25.2% y/y to US$17.091 billion. In January-September all together, imports increased by 35.1% y/y, reaching US$156.782 billion. Further contributing to the narrowing of the overall current-account balance, Turkey's services surplus in September was larger than anticipated, reaching US$2.847 billion, US$400 million larger than it had been a year earlier. A stronger-than-expected tourism season helped boost service exports by 12.0% y/y to US$4.169 billion while service imports edged up by only 3.9% y/y, to US$1.322 billion. In general, the country experienced a strong tourism season that bolstered the cumulative services surplus for the first three quarters by more than US$5 billion as compared to 2007, to US$27.169 billion. Additionally, both Turkey's income and its current transfers balances both improved in September 2008 as compared to a year earlier. However, the modest improvements noted in both of these sectors in September were not enough to prevent a deterioration in the balances for the first three quarters as a whole.
While Turkey's current-account balance improved in September, the net flow of non-debt-creating capital deteriorated substantially. After posting a net inflow of US$4.704 billion in non-debt creating capital (foreign direct and portfolio investment) in September 2007, the country experienced a net outflow of US$273 million in September 2008. A tremendous outflow of portfolio investment has begun as the global financial crisis has triggered investors to pull out of riskier emerging markets. In the first nine months of 2008 as a whole, the net inflow of portfolio was a scant US$158 million, whereas in the same period of 2007 there had been a net inflow of more than US$4 billion. Even what was considered more reliable capital, foreign direct investment (FDI) has dried up as the global crisis has robbed investors of liquidity. After attracting US$17.096 billion in gross FDI inflows in the first three quarters of 2007, Turkey brought in only US$12.311 billion in January-September 2008. The resulting net inflow of FDI has fallen by more than US$5 billion, to US$10.039 billion. With non-debt-creating capital trailing off, new borrowing has sent the inflow of "other" investment soaring, by more than US$20 billion from the first three quarters of 2007 to the same period of 2008.
Outlook and ImplicationsThe sudden freeze in domestic demand has helped stem the worsening of the country's current-account deficit. A slide in the lira has so far offset the weakness of foreign demand in regards to export growth. However, the further deterioration of growth prospects throughout Europe is likely to take a heavy toll on exports in the near future, probably making the September improvement temporary. We anticipate that with both import and export volume falling in the final quarter, the overall current-account balance will still deteriorate as compared to the same period of 2007. As such, our full-year 2008 current-account deficit forecast of around 7% of GDP remains on target. With such a sizeable gap to have to finance, the sharp drop of non-debt-creating capital inflows is extremely dangerous for the country. Turkey will be forced to take heavier and heavier debt burdens to meet financing requirements, with those debts now more expensive given the current international financial conditions. The World Bank estimates that Turkey will need US$130 billion in financing in 2009. Fortunately, the country has a relatively low pre-existing external debt to GDP ratio thanks to reforms enacted since the country's financial crisis of 2001. With its external accounts in such a miserable state, it is becoming increasingly imperative that negotiations with the IMF are completed and Turkey secures access to a new line of credit. Attaining a new lending agreement would reassure potential creditors that the country is not in impending danger of defaulting on its short-term debt obligations.