May 22 2019

Turkey’s ‘unstoppable’ budget deficit may reach 5% of GDP – investor

Turkey’s budget deficit is “unstoppable” and could reach 5 percent of gross domestic product this year, said Emre Akçakmak, a portfolio manager at East Capital.

The deficit has been deteriorating since a referendum on a new presidential system for Turkey in April 2017, with the trend worsening since President Recep Tayyip Erdoğan won increased executive powers in elections last June, Akçakmak said in comments on Twitter. One-off sources of revenue that Turkey has used to help plug the gap are now in short supply.

“Not sure if the presidential system “made Turkey fly” but it looks like the budget deficit started to fly right after the referendum,” he said.

Turkey’s budget deficit has more than doubled to 54.5 billion liras ($9 billion), or 68 percent of the government’s 2019 goal, in the first four months of the year as spending surged and tax revenue slumped. The deficit widened even after the government asked the central bank to pay it 37 billion liras ($6.1 billion) in profits earlier than planned.

“Profit transfers from the CB "saved the day" so far in 2019,” Akçakmak said. “Given lack of recurring real estate and paid military service-related revenues and assuming that payments from CB is unsustainable, a much higher than expected deficit in the range of 4-5% shouldn't come as a surprise.”

The government has introduced tax reductions, job-creation schemes and food-price discounts after the economy entered a recession in the second half of last year. It has also used state-run banks to increase lending to consumers and businesses, some of whom are saddled with debts they cannot repay.

Akçakmak published a chart showing the increasing discrepancy between Turkey’s reported budget deficit and figures that showed an International Monetary Fund-defined method of calculating the shortfall.

Turkey budget deficit