Page 27 - TURKRptJun19

forecast for GDP to decline by 1.8% this year. Despite a limited recovery in quarter-on-quarter terms, Capital assessed that Turkey’s GDP contracted by 3.3% y/y in Q1, Liam Peach of the economic research company said on May 10 in a research note.
Track record. “The government has a track record of keeping fiscal policy loose ahead of elections. Stimulus put in place after the global financial crisis wasn’t fully withdrawn even after the economy recovered as the government kept one eye on the 2011 general election. And ahead of the constitutional referendum in 2017, the budget deficit deteriorated by around 1% of GDP,” Tuvey said on May 7 in a research note entitled “Turkey: Istanbul election re- run poses stimulus risks”. Admittedly, the headline budget figures suggest that stimulus the implemented ahead of March’s local elections was limited. But these data paint a flattering picture. Indeed, there has been a growing divergence between the figures produced by the Treasury and those based on IMF definitions. This arises from the fact that the Treasury records certain items (such as privatisation proceeds and central bank profits) as revenues, whereas the IMF recommends that they be logged as budget financing. The recent divergence can be pinned on the central bank’s decision in January to transfer profits to the government three months ahead of schedule. In the Treasury’s presentation of figures, these “revenues” helped to “offset a rise in government spending”, Tuvey added. However, on the IMF’s definition–which Capital thinks provides a better reflection of the underlying fiscal stance–the primary budget deficit widened by 1.3% of GDP between the end of 2018 and March of this year. “There is, of course, a case for fiscal stimulus at present given the severity of Turkey’s recession–GDP contracted by 4% in the second half of 2018. And the deterioration in the budget position seen in recent years is unlikely to cause major alarm over the government’s debt position. Even so, a further loosening of fiscal policy ahead of the Istanbul mayoral election would raise further questions over the government’s policymaking credibility. And if stimulus isn’t withdrawn, this could lead to a renewed build-up of the economic vulnerabilities–including a deterioration in the current account position–that were at the heart of last year’s currency crisis,” Tuvey concluded.
4.2 Inflation
27 TURKEY Country Report June 2019 www.intellinews.com