The US dollar stockpiles of countries have taken on a new importance amid the global economic turmoil caused by the COVID-19 pandemic. The turmoil has forced countries to review how they manage the gaps between their assets and liabilities and enact fresh measures. As a result, the adequacy of foreign currency reserves in meeting short-term liabilities has become a closely watched indicator.

A report released by the International Monetary Fund (IMF) last week, offers data comparing central bank reserves to the short-term liabilities of countries. The document — an update to the IMF global financial stability report — reveals that the reserves of Turkey’s central bank are below the adequacy limit. The ratio of foreign currency reserves to short-term liabilities, supposed to be at least 100%, stands at about 80% for Turkey, which is shown in the most fragile group, along with South Africa, Chile and Egypt. In terms of the ratio of external financing requirements, including the current account balance and debts maturing within a year, to gross domestic product, Turkey is again among the most fragile countries, along with Poland and Malaysia. 

The IMF’s reserve adequacy norm is a matter of debate on both the reserves and liabilities legs. The argument standing out in Turkey is that the country’s central bank has grown more fragile in meeting its liabilities, with more than 60% of its reserves relying on currency swap deals, that is, a “peg leg.”

According to central bank data, Turkey has $164.6 billion in debts that will mature within a year. The country’s current account deficit reached $12 billion in the first four months of the year and is likely to hit $30 billion by the year-end.