Turkey: The budget deficit continues and widens in the second month

According to the October budget data announced by the Ministry of Treasury and Finance, the budget ran the biggest monthly fiscal deficit of this year with 83.3 billion liras (4.5 billion dollars) in October 2022. In September, the budget had a deficit of 78.6 billion liras. The budget had a deficit of 17.4 billion liras in the same period of last year, thus the fiscal deficit widened almost five times compared to the previous year.

As stated in the Monthly Budget Realization Report, expenditures increased by 133.9% yoy in October and reached 307.4 billion liras. When we look at the sub-breakdowns of this; personnel salary expenditures increased by 100% to 63.1 billion liras. Non-interest expenditures increased by 110.3% annually to 246.3 billion liras due to the effect of current transfers, allocation expenses, Treasury aids such as unemployment insurance fund and state social security contribution and agricultural support payments, and negatively affected the budget balance. In October, interest expenses increased by 327.6% compared to the same period of the previous year. While capital expenditures increased by 106.8%, this was caused by the increase in final product purchases and real estate capital and production expense items. While the purchase of goods and services remained below the inflation rate by 73%, the increase in this rate was mainly due to the contribution of exchange rates and inflation. The highest increase in non-interest items was realized on the side of capital transfers with 288.7%.

State revenues increased by 96.6% to 224.2 billion liras, while tax revenues rose to 181.8 billion liras. The 126.9% increase in the value added tax on imports was effective in this. The increase in exchange rates and inflation and the continuation of the dynamism in domestic demand seem to have provided this. While special consumption tax revenues increased by 155.7%, we see that the tax increases made since the beginning of the year on alcohol, tobacco and motor vehicles were effective in this. Domestic value added tax, on the other hand, showed a relatively limited increase (almost half of the inflation rate) by 39.2%. Corporate tax, on the other hand, decreased by 32.7% and contributed negatively to tax revenues. The income increase in tax external items was realized as 156.4% in October. The increase in this item seems to have contributed to the increase in operating and real estate revenues.

When we look at the 2022 cumulative data; January-October budget deficit was 128.8 billion liras. The budget had a deficit of 78.5 billion TL in the January-October 2021 period. These data show that the performance of the budget as of the 10-month period is more negative compared to the previous year. Between January – October 2021 and January – October 2022, budget revenues increased by 99.1% to 2,199.4 billion TL with the contribution of value added tax and corporate tax on imports, while budget expenditures increased by 96.8% to 2,328.2 billion TL in the same period.

Ratio of budget and primary balance to GDP (12-month cycle)… Source: Ministry of Treasury and Finance, TurkStat, Tera Yatırım

The Treasury had a cash budget deficit of 72.2 billion liras last month. The central government budget posted a deficit for the second month in a row, following the increase in current transfer expenditures, including financial aid to households. While the budget revenues come mainly from the taxes on imports due to the increase in the exchange rate and inflation, interest expenses and current transfers create a burden on the budget expenses. The quiet course of exchange rates in the recent period seems to have limited the payments made to FX-protected deposit accounts. It should be noted that a possible upward pressure on exchange rates will increase FX-protected deposit expenses.

Under the Medium Term Program (MTP), announced at the beginning of September, the government foresees a fiscal deficit that will close the year with 3.4% of the gross domestic product. When comparing the budget performance in the first 10 months of the year, the government's targets show that we can see quite large budget deficits in the last 2 months of the year. Considering the budget performance in the previous months, it is understood that budget expenditures will increase within the framework of expenditures made in line with state supports and social aids as the elections planned to be held in the middle of 2023 approach. We can think that the Treasury will increase borrowing within the framework of the decrease in CDS and bond rates.

Kaynak: Tera Yatırım- Enver Erkan
Hibya Haber Ajansı