Turkey’s gross international reserves have hit a record high recently which, on the face of it, suggests that the policy U-turn since May has helped to diminish the country’s balance of payments vulnerabilities. But the central bank’s large on- and off-balance sheet FX liabilities muddy the water and, once these are stripped out, net reserves remain deeply negative. The central bank’s net FX reserve position will need to improve next year for confidence in the policy shift to be sustained.
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