Turkey’s cash deficit rose by 24% y/y to TRY12.6bn (€3.05bn) in June after posting an annual cash surplus growth of 39% in May, treasury data showed on July 7. The primary cash deficit, on the contrary, declined by 6% y/y to TRY11.8bn in the month.

Since the failed attempt at overthrowing the government last year, Turkish ministers have been pushing stimulation efforts to boost economic growth. Measures including more bank lending at cheaper rates have been pursued, even though strong domestic demand supported by loans carries with it the risk of higher inflation as well as higher current account and budget deficits. Recently announced government measures aimed at stimulating economic growth are expected to reduce the government’s tax revenues this year.  If the government opts to boost growth by directing more state spending into infrastructure projects, Turkey could experience higher budget deficits. 

In H1, the cash deficit grew by 332% y/y to TRY33.4bn while the primary balance pointed to a deficit of TRY15.8bn versus a surplus of TRY4.63bn a year ago. The 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. Consequently, the deficit in the first five months of 2017 amounted to TRY11.5bn against the surplus of TRY9.07bn posted for the same period of 2016.

The finance ministry will release the June central government budget on July 17.

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.

Earlier this week, the Turkish government has struck an agreement with unions for public sector workers to hike around 200,000 wage packets by 7.5% in the first half of 2017 and 5% in the second half.

Turkey will refrain from hiking taxes in 2017 in an effort to contain inflation, Finance Minister Naci Agbal said on June 30.

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.

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.

The gross debt stock of Turkey's central government increased 15% y/y to stand at TRY806bn as of the end of May.

Central government debt growth fell to as low as 3% in September last year but then began to accelerate in October, mainly due to the Turkish lira’s depreciation. Annual debt growth reached the peak point of 17% in January and has stayed high since then despite slight declines. The main concern, however, is still the fast expansion of the private sector's external debt.