Fiscal Balance in Turkey

Turkey - Fiscal Balance

Government presents more restrictive 2019 budget

In late October, Treasury and Finance Minister Berat Albayrak presented the draft 2019 budget to the parliament’s Planning and Budget Commission, ahead of a likely submission to parliament in December. The budget sets out in more detail the tighter fiscal stance previously signaled in September’s New Economic Plan and, if implemented, should help rebalance the economy and avoid further overheating. However, budgeted spending could well be exceeded, which could in turn weaken investor confidence in the government’s commitment to fiscal prudence and put downward pressure on the lira.

Expenditure is seen at TRY 961 billion, which is up roughly 17% from the estimate for 2018. However, given still-elevated inflation next year, expenditure in real terms is thus set to be fairly flat. Looking at the key categories, spending on wages and transfer payments are set for notable above-inflation increases, with the latter likely due in part to an expected rise in unemployment. The government has instead opted to make savings in the capital budget, which is projected to shrink sharply.

Revenues are seen at TRY 880 billion, also up around 17% year-on-year. Consequently, the government foresees a fiscal deficit of 1.8% of GDP in 2019, unchanged from the projection made in the New Economic Plan. If implemented, the draft budget should help support the lira, which lost significant value earlier this year—partly due to investors’ concerns over excessive fiscal stimulus. However, spending overruns are a significant possibility, particularly given local elections early next year and the fact that 2018 expenditure is expected to markedly overshoot the initial budgeted estimate.