Turkey's current account deficit shrunk in 2023 following a drastic policy change that aggressively raised interest rates, which cooled domestic demand in the nearly $1 trillion economy, Bloomberg reported on Tuesday. The biggest indicator of trade and investment, the current account deficit, decreased to $45.2 billion for the entire year from $49.1 billion in 2022, according to balance-of-payments data released on Tuesday. The current account worsened at the end of 2023, primarily due to increased energy costs, despite improving since May with four months of surpluses or almost zero deficits. The data released by the central bank showed a $2.1 billion shortfall in December, which was less than the amount predicted by economists surveyed by Bloomberg. This large deficit is a reflection of the difficulties Turkish policymakers continue to face in directing an economy long crippled by trade imbalances. The central bank announced in January that it was ending an eight-month cycle that had begun following the May presidential elections, and it had more than quintupled its key rate to 45 per cent. Despite the abrupt resignation of Hafize Gaye Erkan as central bank governor this month, Turkey appears to be on the right track. Her replacement, Fatih Karahan, a member of the rate-setting committee with over ten years of experience as a professional economist in the U.S., kept things stable on a team that supported more conventional policies. Karahan acknowledged in his speech last week that the current account has improved due to tighter monetary policy. With Turkey aiming to reduce the ratio to 3.1 per cent in 2024, the government's medium-term program, released in September, the new governor, who left open the possibility of additional rate hikes if necessary, projected that the current account deficit would decrease from 5.3 per cent of GDP in 2022 to 4 per cent by the end of 2023.
