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Turkey: Budget balance turns into surplus with increasing tax revenues in November

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According to the November budget data announced by the Ministry of Treasury and Finance; The central government budget, which had a deficit of 17.4 billion TRY in October 2021, had a surplus of 32 billion TRY (2.18 billion USD) in November 2021. The budget had a surplus of 13 billion TRY in the same period of last year. As stated in the Monthly Budget Realizations Report, the primary surplus, which was TRY 22.9 billion in November 2020, became TRY 47.3 billion in November 2021. Budget revenues increased by 53% to 167.8 billion TRY, with tax revenues increasing by 50% to 148.9 billion TRY between November 2020 and November 2021, well above the 21.3% headline inflation. General government expenditures, on the other hand, increased by 41% and reached 135.8 billion TRY in the same period. Expenditures excluding interest payments increased by 39% to TRY 120.4 billion with the effect of current transfers, which increased by 29% and reached TRY 44 billion.

 

When we look at the cumulative data of 2021; In the January – November period, it was observed that the budget had a deficit of 46.5 billion TRY. It is seen that the budget, which had a deficit of 132.1 billion TRY in the 11-month period of the previous year, displayed a more positive outlook compared to the previous year. While 3 billion TRY primary deficit was recorded in January – November 2020, 125.4 billion TRY primary surplus was realized this year. Budget revenues increased by 36.5% between January – November 2020 and January – November 2021 to 1,272.3 billion TRY, while budget expenditures increased by 24% to 1,318.9 billion TRY in the same period. In the same period, the increase in tax revenues was 39.6%, reaching TRY 1,053.4 billion. Non-interest budget expenditures, on the other hand, increased by 22.7% and amounted to TRY 1,146.9 billion.

 

While the cash budget surplus of the Treasury was TRY 30.3 billion in November, the surplus excluding interest was TRY 43.5 billion. Strong tax revenues helped Turkey, which ran a deficit for two consecutive months, to run a budget surplus in November. At this point, despite the increasing interest and non-interest expenses, the higher rate of increase in revenues explains the better budget performance between comparable periods. The government estimates that the budget deficit will reach 3.5% of gross domestic product in 2021. Government expenditures and financial supports may be at the forefront in order to maintain the 5-5.5% band set forth in the MTP in the coming years in the growth path. Increasing economic activity will likely support an increase in direct taxes and corporate taxes. On the indirect taxes side, there is a loss of SCT due to the scale mobile system, which was developed against price increases in fuel products. As for the SCT and VAT revenues taken on consumption, the effect of the forward demand is observed, especially as the ongoing depreciation of the lira fuels inflationary expectations. On the income side, we also observe the contribution of debt restructuring revenues transferred from last year’s pandemic period this year.

 

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We will continue to monitor the impact of savings measures in the public sector on budget expenditures, especially in terms of purchases of goods and services. In growth targets, the way and degree of use of government expenditures will be directly related to the realization of the budget targets. We think that fiscal policy can still be active at this point. Interest expenses, on the other hand, can be a suppressive factor, especially in the context of increasing borrowing costs. For this reason, we follow the Treasury’s strategy to reduce FX-based borrowing, especially on the domestic borrowing side. Our expectation is that the budget deficit/GDP ratio will be 3.5% this year and 3.6% next year, and the budget deficit to national income ratio will decrease to 2.9% as of 2024. In the MTP, these targets are foreseen as 3.5% for 2021 and 2022, 3.2% for 2023 and 2.9% for 2024.

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