Mystery capital flows to Turkey reach $24.4 billion

Mystery capital flows to Turkey reach $24.4 billion
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Turkey’s central bank can not account for $24.4 billion during the first seven months of the year and funding from Russian billionaires could be one of the reasons, Financial Times said.

Turkey has brought in about $24.4 billion more than it can explain this year, the British Financial Times newspaper reported on Wednesday, saying that amount was "laying right there on the street"

“Mystery capital flows into Turkey have reached new highs, allowing policymakers to boost foreign reserves despite a growing trade deficit and weak demand for lira assets. The central bank in Ankara said Monday that money it can’t account for in the monthly balance-of-payments data rose to $5.5 billion in July, taking the tally during the first seven months of the year to $24.4 billion. Both are records, according to data going back nearly four decades,” the newspaper quoted Bloomberg. 

These discrepancies, also known as Net Errors and Omissions (NEO) increased hugely since last year when the number was just $10.2 billion, FT said, adding that tourism income alone could not explain the gap, since revenues from vacationers was around $16.4 billion for the first six months.  

The truth is that we simply don’t know in any detail what drives the NEO component of the BOP. It is very large in Turkey at the moment and it is likely to be the result of mis-recorded capital flows. But in reality it could reflect anything from the selling of gold and the deposit of FX, to the mis-recording of services trade or smuggling. It’s difficult to know exactly what is going on but it’s clear that this has provided a key support to the current account deficit this year and if these unexplained flows reverse it would put the spotlight back on Turkey’s low reserve coverage,” FT quoted Liam Peach, from Capital Economics as saying. 

Meanwhile Timothy Ash, from BlueBay Asset Management said that Turkish banks could be accepting money moving out of Russia. “If a guy comes with a suitcase of cash, [Turkish banks] will find ways of allowing them to do business…” he told the FT.