The Turkish government’s budget surplus grew 22% y/y to TRY1.13bn (€146mn) in July after posting deficit growth of 89% y/y to TRY25.6bn in June, data from the finance ministry showed on August 15.

Across January-July, the budget deficit expanded by 85% y/y to TRY45bn while the central government budget produced a primary deficit of TRY3.01bn versus a primary surplus of TRY8.44bn in the first seven months of 2017.

Expenditures rose by 22% y/y to TRY460bn in the first seven months while revenues rose 18% y/y to TRY415bn.

The government's tax revenues rose by 20% y/y to TRY349bn in January-July.

The government is targeting a budget deficit of TRY65.9bn and a primary surplus of TRY5.78bn for 2018.

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 medium-term economic programme, the targets for the budget deficit/GDP ratio are 1.9% for both 2018 and 2019 and 1.6% for 2020.

“The government’s budget deficit is likely to widen due to economic weakness and, probably, a modest loosening of fiscal policy. However, high inflation means that the public debt ratio is unlikely to be a point of concern,” William Jackson of Capital Economics said on August 15 in a research note entitled “Turkey: what next?”.

Although it abated somewhat over August 14-15, the plunge in the value of the Turkish lira is likely to push inflation above 20% and tip the economy into recession in the coming months, according to Jackson.

Capital Economics’ base case is that GDP growth will now average 3.0% over 2018 as a whole thanks to a strong first half of the year and be flat over 2019. Capital’s previous forecasts were +3.5% and +2.5% respectively.

“It now looks more likely than not that the central bank will refrain from hiking interest rates significantly. However, there is a real risk that banks and corporates could struggle to roll over external debts, making the crisis more acute,” Jackson added.