Page 52 - TURKRptJun19

referred to the way being open for eurobond sales with higher costs of 40- 60bp, Bloomberg was harsher on May 22 in an op-ed entitled “Turkey Burns Bridges With Markets as Costs of Lira Defense Mount”. Unlike Reuters’ unnamed investors ready to buy the Turkish government’s eurobonds at those higher costs, Win Thin of Brown Brothers told Bloomberg that he can’t see any significant flows returning until policy makers become more market-friendly. “Turkey has already shown that it doesn’t care if real money can’t hedge properly,” he added. By now, both Reuters and Bloomberg show little hesitation in pointing to the Turkish government’s currency and interest rate manipulations—it’s been going on for more than six months. The next step is to question the reliability of the official inflation figures. Reuters is heading up that path.
“I still don’t see Turkey doomed” Although Bloomberg claimed with its headline that Turkey has burnt its bridges with the markets, it quoted Viktor Szabo of Aberdeen Standard in the last line of its article as saying: “Many policy errors were made, but I still don’t see Turkey doomed.” Interestingly, Global Capital reiterated on May 21 that “investors react to headlines, but bank relationships tend to be stickier”. “Turkey is the perfect example. Despite the currency crisis that rocked the Turkish economy and sovereign bonds last August, international lenders remained committed to funding the country's banks with which they have long-established relationships. While investors sold Turkish sovereign bonds as fast as they could in the run up to the local elections in March, lenders held steady, even providing Turkish borrowers with tighter margins on their semi-annual refinancings. Secondary loan market spreads widened only a little.” However, it should be observed that the global lenders are only providing their Turkish peers with debt roll-overs at lower ratios and Turkey has been a net loan payer for a while. So, no additional cash is actually available from the foreign loans. Finally, the jaundiced eye should not err in looking away for too long from that handy “net errors and omissions” item in the BoP accounts. During Erdogan’s rule, unknown money has so very often flowed into Turkey at opportune moments.
6.1.2 Budget dynamics - tax issues
In January-April, total expenditures rose by 29% y/y to TRY330bn while revenues rose by a relatively limited 19% y/y to TRY276bn with tax revenues increasing only 6% y/y to TRY203bn. Also across the first four months of the year, direct taxes (income + corporate + wealth) rose by 21% y/y to TRY79.3bn but VAT revenues declined by 17% y/y to TRY17.4bn and special consumption tax (SCT) collection contracted by 8% y/y to TRY41bn.
Turkey will at the end of May scrap a tax-free exemption for lower-valued e-commerce packages and introduce a customs tax of up to 20%, according to an Official Gazette announcement made on May 15. Since last year, the customs tax has only applied to orders coming from abroad if the declared package value exceeded €22. The maximum value has gradually been lowered over the years. Where applying the customs tax to packages of books is concerned, a €150 threshold will be kept in place, the Gazette said. In 2018, Turkey’s e-commerce market was worth Turkish lira 59.9bn ($9.9bn), and was largely composed of retail and travel transactions, according to a report by Deloitte and Turkey’s Informatics Industry Association (TUBISAD), cited by Reuters. E-commerce enterprises assess Turkey, with a population of 82mn people and a median age of 32 that is lower than any other country in Europe, as having high potential. By 2040, the population is expected to grow to 100mn.
6.1.3 Budget dynamics - privatization
Bids for Turkish national lottery operating rights expected in June: wealth fund head. The deal for the rights should be completed by the end of the year if all goes to plan, Turkish media reported on May 2 the head of the
52 TURKEY Country Report June 2019 www.intellinews.com