Budget, December 2020: A Tough Road in Medium Term

In December, Budget gave a deficit of TL40.7bn. There was no consensus available. Budget gave a deficit of TL 30.8bn in Dec.19 (Nov.20: TL+13.4bn). Accordingly, the budget gave a deficit of TL172.7bn in 2020 (2020 Initial Target: TL-138.9bn, 2020 Revised Target: TL 239.2bn, 2019: TL-123.7bn). Hence, budget deficit to GDP ratio was 3.5% in 2020 according to the our calculations (2020 Initial Target:-2.9%, 2020 Revised Target: -4.9%, 2019: -2.9%).Additionally, the primary balance posted a deficit of TL35.8bn in December (Dec.19: TL-26.6bn, Nov.20: TL+22.9bn). Hence, primary deficit was TRY38.8bn in 2020 (2020 Initial Target: TL+0.1bn, 2020 Revised Target: TL -101.8bn, 2019:TL-23.8bn). Therefore, primary deficit to GDP ratio was -0.8% in 2020 (2020 Initial Target:0%, 2020 Revised Target: -2.1%, 2019: -0.5%). In briefly, we could say that albeit the initial targets missed, actual budget figures was better than the revised targets remarkably.

Budget revenues increased by TL24.2bn YoY, up 16% YoY in real terms, to TL97.6bn. Tax revenues increased by TL8.4bn, 14% YoY in real terms, to TL78.5bn, while non-tax revenues increased by TL5.8bn, up by 26% YoY in real terms, to TL19.1bn. The main drivers on the YoY increases on the tax revenues were collections from Special Consumption Taxes (SCT), foreign trade and Value Added Tax (VAT). The highest contributions to the SCT collections came from SCT on motor vehicles and tobacco. This outlook could be seen as a reflection of the ongoing recovery trend and beginning of the collection of some deferred revenues. In 2020, budget revenues increased by TL154.2bn, up 4.8% YoY to TL1,029bn. Tax revenues increased by TL159.2bn, 10% YoY in real terms, to TL833bn, while non-tax revenues decreased by TL5bn, down by 13% YoY in real terms, to TL196.4bn.

Budget expenditures increased by TL34.2bn YoY, up 16% YoY in real terms, to TL138.2bn. Non-interest expenditures increased by TL33.5bn YoY, up 16% YoY in real terms, to TL133.4bn, while interest expenditures increased by TL0.7bn YoY, up 2% YoY in real terms, to TL4.9bn. All items of non-interest expenditures except personnel expenditures YoY increases in real terms. The key driver of the increasing budget expenditures was current expenditures due to the ongoing need of incentives. In 2020, budget expenditures increased by TL202.2bn, up by 7% in real terms to TL1,202bn. Non-interest expenditures increased by TL168.2bn YoY, up 5.7% YoY in real terms, to TL1,068bn, while interest expenditures increased by TL34bn YoY, up 19% YoY in real terms, to TL134bn.

Governments new buddet-to-GDP ratio target is 3.5% for 2021. President Erdogan said that Turkey’s budget risks will continue in 2021 due to the coronavirus pandemic, but that it aimed to lower the deficit-to-GDP ratio to 3.5% this year. This target was announced as 3.9% in 2021-2023 Medium Term Program. Additionally, President Erdogan told that the government does not make concessions on fiscal discipline and some new measurements on revenues and expenditures would be announced soon.  We should note that the incentive needs in the economy prevails simultaneously with the tight monetary policy necessities. This condition could continue to put a negative pressure on the budget outlook in 2021. We should also note that the increasing share of the FX and gold in internal borrowings recently could be seen as another difficulty on the budget outlook. Our budget to GDP ratio estimate is at -4.5% for 2021. We could make revisions on our forecasts after seeing the details of the measurements. Ongoing need of tight monetary policy, requirement of fiscal policy coordination in terms of the inflation outlook, decreasing social mobility due to the pandemic and elevated levels of incentive necessity indicate that the the budget outlook would be tough in the coming months.


Source: Y.F Securities Research