The Turkish government’s August budget deficit grew 563% y/y to TRY5.8bn (€136mn) following the surplus growth of 22% y/y recorded in July, finance ministry data showed on September 17.

“The budget balance showed some deterioration last month on a yearly basis with a spike in both primary and interest expenditures, despite healthy revenue generation,” Muhammet Mercan of ING Bank said in a research note.

The pace of the real increase in tax revenues lost momentum with a mere 0.6% real growth in August vs 5.7% on a year-to-date basis, likely showing the impact of softening economic activity, Mercan also said. He added that initial signs of fiscal consolidation, with nominal declines in spending for goods & services purchases and capital expenditures, were observed, though current transfers skyrocketed with a more than 30% real change in August.

“Overall, given the current calls for fiscal prudence, the Medium Term Economic plan to be announced this week will be key for resuming fiscal consolidation and containing contingent liabilities,” Mercan added.

Across January-August, the budget deficit expanded by 102% y/y to TRY51bn while the central government budget produced a primary deficit of TRY559mn versus a primary surplus of TRY13bn in the first eight months of 2017.

Expenditures rose by 24% y/y to TRY536bn in the first eight months while revenues rose 19% y/y to TRY486bn.

The government's tax revenues rose by 19% y/y to TRY410bn in January-August.

The government is targeting a budget deficit of TRY65.9bn and a primary surplus of TRY5.78bn for 2018. The government is expected to announce its long-awaited Medium Term Programme on September 20 in which it is expected to employ major fiscal tightening amid Turkey’s economic turmoil, most apparent so far in its currency crisis.

For the full year of 2017, the central government budget balance showed a deficit of TRY47.4bn, below expectations at around 1.5% of GDP.

Under Turkey’s current Medium Term Programme, the targets for the budget deficit/GDP ratio are 1.9% for both 2018 and 2019 and 1.6% for 2020.