While the cash budget balance had a deficit of TL 3.5 billion in February, the central government budget balance had a surplus of TL 23.2 billion.
In February, the central government budget registered a surplus of TL 23.2 billion. The Treasury cash budget announced in the first week of March had a deficit of TL 3.5 billion in February. The fact that the revenue in the central government budget is TL 21.2 billion more than the cash budget revenue and expenditures are TL 5.4 billion less, explains the difference of TL 26.6 billion between the two budget balances. On the “Expenses” side, we can see the differences in both budgets as “Non-financial expenses” and “Interest payments”. Consequently, non-interest expenses are 6.8 billion less than the central government budget, while interest payments are 1.4 billion TL higher.
Let’s talk about the evolution of the central government budget. I will evaluate the details of the budget together, not monthly, but in the period from January to February.
In the period January-February 2021, the budgetary income of the central government was supported by the SCT and foreign trade.
Let’s focus primarily on the “Income” side of the Central Government Budget. In the January-February 2021 period, central government revenue increased 0.4% compared to the same period of the previous year. When we look at the sub-details, “Income from taxes” increased by 28% in the same period, while “Income from the treasury portfolio and affiliates” decreased by 98%.
The main sources of the increase in “Tax Revenues” are the 22% increase in the “Special Consumption Tax (SCT)” and a 48% increase in the “Value Added Tax on Imports” in the same period. The main reason for the decrease in the income of the subsidiaries is that TL 40.5 billion of the profits of the Central Bank were transferred to the Treasury in January 2020, while no transfer was made from the Central Bank in January 2021.
Consequently, the increases in the SCT and in the foreign trade channel supported budget revenues in the January-February 2021 period.
In the January-February 2021 period, non-interest expense increased 5% on an annual basis and interest expense increased 29%.
Central government budget expenditures increased 8% in the January-February 2021 period compared to the same period last year. While “Budgetary expenses excluding interest” increased by 5% per year in the same period, the increase in “Interest expenses” was 29% per year.
In the area of ”Non-interest budgetary expenses”, “Personnel expenses” grew by 16% and “Current transfers” by 18% in the same period. The “Health, retirement and social assistance expenses” in “Treasury aid” in “Current transfers” increased by 29% in the same period.
I would like to point out that the 68% annual decrease in “Capital Expenditures”, which covers expenses related to real estate and constitutes 9% of “Uninterested Budgetary Expenditures” throughout 2020, is the most important item in which budget discipline is applied.
If there is no acceleration in the Covid-19 vaccination, the pressure on the SCT and interest payments will continue …
The budgetary details reveal that in the period January-February 2021, there was an increase in the income supported by the SCT and foreign trade, but the room for maneuver on the expenditure side was limited.
The Treasury’s emphasis on domestic borrowing will partially insure against a possible depreciation in TL, but the increase in interest rates on TL-denominated bonds will also increase “Interest payments”.
Furthermore, if vaccination against Covid-19 is not accelerated, the contribution of the service sector to economic activity will be limited.
These factors will continue the pressure on the SCT and bond rates.
In short, the potential risks do not present an optimistic outlook on the Turkish lira and inflation unless confidence-building signals emerge.
Dr. Fulya Gurbuz
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