Türkiye registered a smaller-than-expected current account deficit of $2.56 billion in January, official data showed on Tuesday, maintaining a steep downward trend since the second half of last year.

The figure marked a 75.5% decline from a shortfall of $10.4 billion in January 2023, according to the Central Bank of the Republic of Türkiye (CBRT) data, and came in below market expectations.

The annualized deficit narrowed to $37.5 billion, the data showed, a $22.6 billion decline from $60.1 billion in May 2023, Treasury and Finance Minister Mehmet Şimşek said.

The current account is the most complete measure of trade because it includes investment flows and trade in merchandise and services. A deficit means Türkiye is consuming more from overseas than it is selling abroad.

A median forecast in a Reuters poll estimated a $2.8 billion deficit in January. The forecasts ranged from $2.5 billion to $3.1 billion. A Bloomberg survey envisaged a gap of around $2.9 billion.

The decrease in the shortfall that Trade Minister Ömer Bolat called "historic" was influenced by the annual decline in the defined foreign trade deficit.

A major component of the current account, the trade deficit fell 64.8% in January year-over-year to $4.4 billion, following government steps to reduce imports and boost exports, according to Bolat.

"Service revenues have once again exceeded $100 billion on an annualized basis in January. Travel revenues, a component of services, increased to $47.8 billion," the minister wrote on social media platform X, formerly known as Twitter.

The foreign trade deficit decreased by 42.3% to $7 billion in February, as per the provisional foreign trade statistics announced by the Trade Ministry.

"In this context, it is expected that the decrease seen in the annualized basis of the current account deficit since the second half of last year will continue in the upcoming period," said Bolat.

"We aim to strengthen the necessary macroeconomic stability with a permanent improvement in the current account."

The gold- and energy-excluded current account balance saw a net surplus of $3.59 billion in the month, the CBRT said.

The gold deficit was $4.45 billion, while the services saw a net surplus of $2.79 billion. The travel item, under services, posted a net inflow of $2.19 billion.

Primary income and secondary income recorded a net outflow of $856 million and $44 million, respectively, the bank said.

The direct investments saw a net inflow of $661 million in January, it added.

Narrowing the current account gap and reaching a surplus were among the main goals of President Recep Tayyip Erdoğan's economic plan in recent years. However, sharply rising oil, gas and grain prices after Russia's invasion of Ukraine caused it to widen until mid-2023.

The current account deficit widened to $48.8 billion in 2022, largely driven by energy and gold, and narrowed slightly to $45.2 billion in 2023, although it was above the government forecast of $42.5 billion.

Economists expect the current account deficit to continue to improve in 2024. The government forecast in September a current account deficit of $34.7 billion this year.

With the decrease in the foreign trade deficit continuing in February, Şimşek said the ratio of the current account deficit to the national income would fall below 3% by the end of the first quarter.

"We expect to complete this year with a ratio closer to the sustainable current account deficit level than our forecast of 3.1% in the Medium Term Program," said the minister.

"This performance will also contribute to the disinflation process by strengthening macroeconomic stability."

The 2023 deficit amounted to 4.1%-4.2% of gross domestic product (GDP), down from 5.4% a year earlier.

Economists attributed the decline to a policy shift after the May general and parliamentary elections and the decrease in energy prices.

In a U-turn after years of easing policy, Türkiye delivered aggressive interest rate hikes since last June as part of policies aimed at taming inflation, reducing chronic deficits, rebuilding foreign exchange reserves and stabilizing the Turkish lira.

Since June, the central bank has hiked its policy rate to 45% from 8.5% and pledged to fight inflation and the government has introduced tax and fee hikes to boost its budget income.

It also introduced measures to cap strong domestic demand, one of the main reasons for higher imports, and to boost investments and exports to improve the current account balance.