Current Account Deficit Sustainability in Turkey: A Comparison with Greece in Debt Crisis

Abstract

Current account deficit, which is one of the indicators of economic performance of a country, means that an economy transfers net income abroad. Generally, the long term and persistent current account deficits are not wanted since it is generally accepted that such kind of deficits and their financing methods increase the vulnerability of the economy to external shocks, and even, can cause crisis. In fact, in the economic literature, there are many empirical studies which have confirmed that long-term current account deficits can cause serious problems in the economy and increase the risk of a country, and make it more vulnerable in emerging and developing economies. Recently, Turkey with the current deficit / GDP ratio, that increases gradually, has become one of the countries having high current account deficits. This case caused that the level of its current deficit and its sustainability has made one of the most widely debated issues in recent years in Turkey. In this paper, firstly, the sources of the current account deficits of Turkey will be explained. Then, the current case of Turkish economy is compared with the example of Greece in which sovereign debt crisis exploded in the last quarter of 2009. Finally, the sustainability of the current account deficits of Turkey is assessed. The paper shows that the current account deficits of Turkey\'s economy is getting away to be sustainability. Also, it finds that today, the trend of many economic indicators of Greece before crisis is similar to that of Turkish economy.