Turkey’s Mystery Outflows Hit Near $10 Billion in Election Month

(Bloomberg) -- Unexplained outflows of capital from Turkey surged again during a month when voters went to the polls, a repeat of the money drain it suffered in the run-up to national elections a year ago.

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Net errors and omissions — or money of unknown origin — had a drop of nearly $10 billion in March, nearly matching the tally in May 2023, according to balance-of-payments-data published on Monday. The outflows set back the central bank’s reserves by about the same amount, as the deficit in the current account ballooned to $4.5 billion, far exceeding the median forecast in a Bloomberg survey of economists.

Elections have been triggers for money flooding out of Turkey, in a reflection of worry about the risk of a sharp currency devaluation after votes are tallied. The lira lost as much as 7% in a single day after last year’s presidential ballot.

Still, the scale of Turkey’s capital flight in March is a surprise given a shift toward more conventional economic policies since last June and the central bank’s focus on ensuring a real appreciation of the lira.

The Turkish currency has stayed on a relatively stable course since the local election, gaining 0.5% against the dollar, even as President Recep Tayyip Erdogan’s party suffered a historic defeat in some of Turkey’s biggest cities.

Read more: Erdogan’s Public Spending Craze to Pause Over Inflation Fight

Hard currency and gold frequently become a refuge of choice for Turks anxious about economic and political volatility. In March, gold imports represented about a quarter of the total current-account deficit.

Additional fiscal adjustments should help put Turkey’s external finances on a more sustainable track by slowing domestic demand, said Istanbul-based economist Haluk Burumcekci.

Though gold imports rebounded in March and April, Burumcekci expects the current-account deficit to narrow in 2024 by a third from last year to $30 billion.

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