The central government budget posted a surplus of TRY 1.9bn (EUR 634mn) in January versus a surplus of TRY 5.9bn a year earlier, the ministry of finance said on Monday.

The primary surplus fell by 38% y/y to TRY 6.9bn in the month. Budget revenues rose by only 2.8% y/y but expenditures increased by 16.4% y/y in January, data of the ministry showed. Non-interest expenditures were up 20.5% y/y, interest expenditures fell by 4% y/y. The rise in expenditures may be the first sign that government expenditures will continue to increase ahead of the crucial March local elections and the presidential election in August. Government’s capital expenditures jumped 544% y/y, capital transfers soared 3,698% y/y in January.

On the revenues side; tax collection was up 15% y/y with VAT revenues rising 15.7% y/y. Special consumption tax revenues fell 0.8% y/y but import tax collection rose by 38.7% y/y.

The economy is facing the risk of slowing down which will have consequences for the budget revenues and, on the other hand, the government should be expected to increase expenditures ahead of the March elections to please its supporters. The central government budget posted a deficit of TRY 18.45bn last year versus TRY 29.4bn deficit in 2012. The 2013 budget shortfall was lower than the government’s revised projection of TRY 19.4bn (or 1.2% of GDP).

This year, the government targets a budget deficit of TRY 33.3bn (1.9% of GDP) and a primary surplus of TRY 18.7bn (1.1% of GDP). Note that, these forecasts were made under the assumption that the Turkish economy will grow 4% this year.