Page 64 - TURKRptMay19

6.1.1 Budget dynamics - specific issues
On April 15, central government budget data showed that the deficit continued to grow , albeit at a relatively limited pace compared to the first two months of 2019. It was up 21% y/y to TRY24.5bn in March. The cumulative deficit grew by 77% y/y to TRY36.1bn in Q1 as the pre-election boost arranged in expenditures outmatched early transfers to the state budget from the central bank and other public institutions. 12-month rolling budget deficit has also reached TRY88.4bn (2.1% of Seker Invest’s projected GDP), Serkan Gonencler of Istanbul-based brokerage said on April 16 in a research note entitled “Budget deficit rising amidst poor tax collection and increasing non-interest expenditures”. Restraining the budget deficit will not be an easy task in a slowing economy, as budgetary improvement is highly dependent on tax revenues, rather than a constraint in expenditures (there is actually very little discretion on the spending side), he added.
The government pledged TRY76bn worth of budgetary savings in 2019. Nevertheless, Seker believes that this may be hard to implement amidst a slowing economy in 2019. For example, the government’s allocation for total investments in 2019 is just TRY 64bn vs. the TRY105bn realization in 2018, implying close to a 50% reduction in real terms. Seker finds this almost impossible to materialize, as this alone might wipe out a significant percentage from GDP growth (probably 1.0-1.5%). As a supportive for Seker’s argument, the government allocated TRY15bn for investments in January alone, which is almost a quarter of the full year allocation.
6.1.2 Budget dynamics - tax issues
Consumption tax collection deteriorating at a fast pace. The weakness in tax collection, especially in consumption taxes, persisted in March with the respective 59% and 25% y/y declines in domestic VAT and SCT collection in real terms, Gonencler also said. Actually, consumption tax revenues (VAT+SCT) have long been performing poorly; they posted an average annual decline of over 30% since September (in real terms), indicating that a similar (probably a little less) private consumption contraction in 1Q to the one experienced in 4Q18 (∼9%) is more likely, as also suggested by the import figures. Projected 5% YoY improvement in tax revenues (in real terms) for 2019 may also be hard to achieve in a slowing or contracting economy, he added. Therefore, the government may require a significant amount of additional non-tax revenue sources to meet the 1.8% budget deficit target in 2019, according to Gonencler.
6.1.3 Budget dynamics - privatization
Turkey’s Deposit Insurance Fund (TMSF) will hold on May 8 a tender to sell Akkoprulu Otomotiv. The tender was announced in the country’s Official Gazette on April 10. The estimated sale price is TRY23.1mn. The company has operated as Ford’s regional distributor in eastern Van province since 1990. It was seized in 2016.
64 TURKEY Country Report May 2019 www.intellinews.com