Turkey mulls extra budget as costs rise and pound drops – sources

By Orhan Coskun and Nevzat Devranoglu

ANKARA, June 9 (Reuters) – Turkey’s government is considering pushing through parliament a supplementary budget ahead of a recess next month to cover possible summer payments and rising costs from a weaker lira and of galloping inflation.

Two sources told Reuters that work on the supplementary budget was underway, but no final decision has been made on whether it will be needed.

The move comes as President Tayyip Erdogan faces a tough election by mid-2023, and his approval ratings have been hit by 73% annual inflation that has sent oil prices skyrocketing. food and gasoline.

The fiscal burden has increased due to rising energy costs, increases in public sector wages and pensions, the fall of the lira and the related increase in the cost of a deposit protection scheme (KKM) launched at the end of 2021 to mitigate the effects of a currency crisis.

“Electricity and gas costs in particular have had an impact (so) it seems impossible to stay on budget this year,” a senior official said on condition of anonymity.

“Additional budgeting seems inevitable.”

A Treasury source said a supplementary budget was not currently on the agenda.

Under pressure from Erdogan for monetary stimulus, the central bank cut rates last year, sending the lira to record highs and stoking inflation. The currency has lost 23% this year after losing 44% last year.

To ease the burden on Turks, Ankara introduced fuel, electricity and gas subsidies worth 200 billion liras ($11.6 billion) in 2021. They were expected to cost 300 billion liras this year, but energy costs have risen much more than expected.

The official said a few meetings have been held but the size of an additional budget is unclear and state institutions are in the process of determining their combined additional budget needs.

“The best option would be to get it through before the holidays,” he added.

Parliament usually rises from the beginning of July to the beginning of October.

“Work has begun to publish a supplementary budget during this legislature… (and) a final decision has not been taken,” another source familiar with the matter said.

The data suggests that the budget deficit was moderate at 2.5% of gross domestic product at the end of April, but the growing cost burden indicates that it will widen by the end of the year towards 5%, which would bring Turkey closer to the level of other developing markets.

The government also considered a supplementary budget at the end of 2021, but shelved the plan and faced rising costs with higher-than-expected revenues.

Following the December currency crisis, the government raised wages and cut taxes to support low-income households, taking advantage of strong public finances and the lowest deficit among its peers until 2016.

Presidential and legislative elections are scheduled for June 2023.

“With the countdown to elections, the anticipation of accelerated spending…has already triggered additional fiscal studies,” said analyst Guldem Atabay of Istanbul Analytics.

The budget deficit-to-GDP ratio remained low around 1% from 2013 to 2016, boosting Turkish investment. It then increased to 1.5% in 2017 and reached 3.5% in 2020.

The KKM’s deposit protection scheme was worth 904 billion lira ($52.5 billion) last week, compared to 6.6 trillion lira in total deposits.

While the central bank is supporting part of the program, the Treasury said its payments to depositors amounted to 21.1 billion lira as of June 3.

Based on the lira at 17 to the dollar, bankers’ calculations show that the fiscal burden on the scheme will be 8 billion liras in June and 5 billion liras in July, with most of the costs transferred to the bank center from August.

($1 = L17.2264) (Writing by Daren Butler; Editing by Jonathan Spicer and Toby Chopra)

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