Turkey’s central government budget surplus rose 74% y/y to TRY6.39bn (€1.63bn) in May from TRY3.66bn a year ago, data from the finance ministry showed on June 15. Consequently, the deficit in the first five months amounted to TRY11.5bn against the surplus of TRY9.07bn posted for the same period of 2016.

The Turkish government’s budget was stretched by a set of economic stimulus measures brought in during the build-up to the April 16 referendum that officially narrowly voted to bring in an executive presidency. A surplus was recorded in January, but there were then three straight months of deficits during the run-up to the referendum.

The fiscal policy easing was temporary and a rapid improvement in the budget balances is to be expected in the second half of the year, Deputy PM Mehmet Simsek said in April.

President Recep Tayyip Erdogan may be set to shift Turkey’s economic management focus from fiscal discipline to growth, Abdulkadir Selvi, a well-informed columnist close to the ruling AKP, wrote on May 25 in an article for Hurriyet. The key question for investors is whether the move might involve a cabinet reshuffle which Deputy PM Mehmet Simsek - a former Merrill Lynch economist praised for formulating fiscal policy which helped Turkey to recover strongly from the 2008 financial crisis - may not survive.

The primary surplus also rose by 15% y/y to TRY10bn in May while it posted a cumulative decline of 57% y/y to TRY14.2bn in the first five months of 2017.

VAT revenues rose by 4% y/y last month despite tax cuts delivered on the way to the referendum, while VAT on imports increased by 24% y/y and special consumption tax revenues rose by 8% in May.

Recently announced government measures aimed at stimulating economic growth are expected to reduce the government’s tax revenues this year. The government transferred its stakes in a number of listed and unlisted companies in March to the country’s newly formed sovereign wealth fund. The switching of the assets will result in a TRY1bn loss in budget revenue.

Tax cuts on white goods and furniture are set to cost the state budget some TRY800mn, Finance Minister Naci Agbal said on April 10.

Turkey’s budget deficit widened 25% to TRY29.3bn last year.  The government’s central budget shortfall target for 2017 is 1.9% of GDP, or TRY46.9bn.