Introduction

• When a country runs persistent current account deficits over time as in the case of Turkey, it should be remembered that the country is building up liabilities to the rest of the world that are financed by flows in the financial account.

• Eventually, these liabilities need to be paid back.

• Hence, persistent current account deficits may lead to problems of solvency, defined as the ability to repay the debt.

• Solvency requires that the country generates in the future sufficient current account surpluses to repay what it has borrowed.