Download 6. Public Finance

Central Bank of the Republic of Turkey
6. Public Finance
The economic contraction triggered by the global economic crisis has led
to large fiscal deficits and high debt across the globe, especially in advanced
economies. Many emerging economies, including Turkey, are on a more stable
fiscal footing, as they recovered more swiftly and adopted relatively less
comprehensive fiscal stimulus measures. Hence, the faster-than-expected
economic recovery and falling interest expenditures help to improve Turkey's
fiscal outlook (Graph 6.1).
The increase in tax revenues amid rapid economic growth was the major
driver of the improved budget balances in 2010. In addition, the relative
slowdown in the growth of non-interest expenditures as well as the decline in
interest expenditures driven by falling domestic borrowing rates contributed to
the improvement in budget balance.
Graph 6.1. Central Government Budget Balance and EU-Defined Public Debt Stock
(Percent of GDP)
Public Debt Stock
Maastricht Criterion: %60
Budget Deficit
Maastricht Criterion: %3
38.8
36.8
2012*
2013*
42.3
40.6
40
2.4
6
4.0
60
2.8
9
2011*
80
2010*
12
20
1.6
3
2009
2008
2007
2006
2005
2004
2003
*
2002
2013*
2012*
2011*
2009
2010*
2008
2007
2006
2005
2004
2003
2002
2001
Estimate.
** MTP(2011-2013) Targets.
Source: Ministry of Finance, MTP (2011-2013).
2001
0
0
* Estimate.
** MTP (2011-2013) Targets.
Source: Treasury, MTP (2011-2013).
Fiscal targets available in the October 2010 MTP for the years 2011-2013
hint at a slight fiscal tightening for coming months. Therefore, the mediumterm forecasts in the last chapter of this Report are based on an outlook where
fiscal policy would be gradually tightened, and public expenditures would
make an increasingly smaller contribution to domestic demand. In order to
maintain fiscal discipline and ensure that Turkey continues to have more
positive readings than other emerging economies, implementing the
institutional and structural reforms set out in the MTP remains critical.
Inflation Report 2011-I
87
Central Bank of the Republic of Turkey
6.1. Budget Developments
The central government budget produced a deficit of 39.6 billion TL in
2010, while the primary balance delivered a surplus of 8.7 billion TL
(Table 6.1.1). Higher tax revenues fueled by economic recovery and tax
adjustments, and falling interest expenditures were the main drivers of the
narrowing budget deficit. In addition, the relative slowdown in the growth of
non-interest expenditures helped to bring the budget deficit down.
Table 6.1.1. Central Government Budget Aggregates
(Billion TL)
Central Government Expenditures
Interest Expenditures
Non-Interest Expenditures
Central Government Revenues
I. Tax Revenues
II. Non-Tax Revenues
Budget Balance
Primary Balance
2009
2010
Rate of Increase
(Percent)
Actual/Target
(Percent)
268.2
53.2
215.0
215.5
172.4
36.2
-52.8
293.6
48.3
245.3
254.0
210.5
35.6
-39.6
9.5
-9.2
14.1
17.9
22.1
-1.5
-
102.3
85.1
106.6
107.3
108.9
97.2
78.9
0.4
8.7
-
132.5
Source: Ministry of Finance.
Having improved over the first three quarters of 2010, central
government budget balance and primary budget balance to GDP ratios
deteriorated slightly amid rising non-interest expenditures during the fourth
quarter (Graph 6.1.1). The steady upward trend in the budget revenues to GDP
ratio since the fourth quarter of 2009, driven by higher tax revenues, paused in
the fourth quarter. Meanwhile, after having slowed slightly during the first
three quarters of 2010, the non-interest expenditures to GDP ratio increased
significantly in the last quarter (Graph 6.1.1).
Graph 6.1.1. Central Government Budget
Budget Balance
Budget Revenues and Non-Interest Expenditures
(Percent of GDP)
Budget Balance
(Percent of GDP)
Budget Revenues
Primary Balance
8
24
6
23
Non-Interest Expenditures
22
4
21
0.8
2
20
19
0
18
-2
17
-4
-3.6
-6
16
15
14
-8
1
2
3
4
1
2007
2
3
2008
4
1
2
3
2009
4
1
2
3 4*
2010
1
2
3
2007
4
1
2
3
2008
4
1
2
3
2009
4
1
2
3 4*
2010
* Estimate.
Source: Ministry of Finance.
88
Inflation Report 2011-I
Central Bank of the Republic of Turkey
Central government primary budget expenditures increased by 14.1
percent year-on-year in 2010. Among non-interest expenditures, current
transfers and personnel expenditures were up by 10.8 and 11.4 percent,
respectively, while purchase of goods and services decreased by 3.3 percent.
This decline was mainly due to the fall in health expenditures of both public
employees and green card holders, as these expenditures are now covered by
the government’s health insurance plan. Furthermore, government premiums to
the SSA increased by a striking 53.4 percent, owing to the launch of premium
payments for public employees covered by government’s health insurance plan
since January of 2010. Meanwhile, capital expenditures increased by about 29.1
percent, indicating that public investments made a positive contribution to GDP
growth in 2010 (Table 6.1.2).
Table 6.1.2. Central Government Non-Interest Expenditures
(Billion TL)
Non-Interest Expenditures
1. Personnel Expenditures
2. Government Premiums to SSA
3. Purchase of Goods and Services
a) Defense and Security
b) Health Expenditures
4. Current Transfers
a) Duty Losses
b) Health, Pension and Social Benefits
c) Agricultural Support
d) Shares Reserved from Revenues
5. Capital Expenditures
6. Capital Transfers
2009
215.0
55.9
7.2
29.8
9.7
8.8
92.0
4.1
52.7
4.5
21.5
20.1
4.3
2010
245.3
62.3
11.1
28.8
9.4
5.8
101.9
3.3
55.0
5.8
26.4
25.9
6.7
Rate of Increase
(Percent)
14.1
11.4
53.4
-3.3
-2.3
-34.6
10.8
-20.3
4.5
29.4
22.6
29.1
56.0
Actual/Target
(Percent)
106.6
103.2
99.5
114.4
103.5
119.8
99.7
76.5
95.4
103.8
110.2
136.9
196.4
Source: Ministry of Finance.
General budget revenues increased by 18 percent year-on-year in 2010.
Tax revenues were up 22.1 percent, whereas non-tax revenues were down 1.5
percent due to falling enterprise and property revenues, interests, shares and
fines (Table 6.1.3). In particular, the substantial increase in consumptionrelated tax revenues indicates that consumption demand remains strong.
Table 6.1.3. Central Government General Budget Revenues
(Billion TL)
General Budget Revenues
I-Tax Revenues
Income Tax
Corporate Tax
Domestic VAT
SCT
VAT on Imports
II-Non-Tax Revenues
Enterprise and Property Revenues
Interests, Shares and Fines
Capital Revenues
2009
2010
Rate of Increase
(Percent)
Actual/Target
(Percent)
208.6
172.4
38.4
18.0
20.9
43.6
26.1
36.2
9.9
23.1
2.0
246.1
210.5
40.4
20.9
26.3
57.3
36.2
35.6
9.8
21.0
3.4
18.0
22.1
5.1
16.1
26.2
31.3
38.5
-1.5
-1.6
-8.9
65.1
107.0
108.9
97.3
116.5
116.3
104.9
120.3
97.2
144.9
117.9
31.7
Source: Ministry of Finance.
Inflation Report 2011-I
89
Central Bank of the Republic of Turkey
The contraction in real tax revenues that started in the third quarter of
2008 has been replaced by a rapid growth as of the fourth quarter of 2009 with
the rebound in private consumption demand. After a robust first quarter, the
pace of annual growth in real tax revenues eased in the remaining quarters of
2010 on waning base effects (Graph 6.1.2). Real tax revenues were also
boosted by the lump-sum tax hike on fuel and tobacco in early 2010.
Accordingly, SCT revenues and domestic VAT revenues increased by 24.9 and
12.3 percent year-on-year, respectively, in real terms during the fourth quarter
of 2010 (Graph 6.1.2).
Graph 6.1.2. Real Tax Revenues
Reel Tax Revenues
Reel VAT and SCT Revenues
(Annual Percentage Change)
(Annual Percentage Change)
20
40
Real Domestic VAT Revenues
Real SCT Revenues
12.2
15
30
10
20
5
10
0
-5
0
-10
-10
-15
1
2
3
4
1
2
2007
3
4
1
2
2008
3
4
1
2009
2
3
4
-20
1
2010
2
3
2007
4
1
2
3
2008
4
1
2
3
4
1
2009
2
3
4
2010
Source: Ministry of Finance.
The improvement in the program-defined consolidated public sector and
central government primary balance that started in the last quarter of 2009
continued into the first three quarters of 2010 (Graph 6.1.3). Moreover, the
primary balance of extrabudgetary funds, SEE, social security institutions and
the Unemployment Insurance Fund improved year-on-year during the third
quarter of 2010 (Graph 6.1.3).
Graph 6.1.3. Primary Balance
Program-Defined Primary Balance
Consolidated Public Sector Primary Balance: Selected Items
(Annualized, Billion TL)
(Annualized, Billion TL)
6
40
5.2
5
30
2009Q
4
2010Q3
3.0
3
20
7.1
4.8
10
2
1
0.2
0
0
Source: Treasury.
-0.1
1010
0710
0410
0110
1009
-2
0709
0409
-1
0109
1008
0708
0408
0108
1007
Consolidated Public Sector
Primary Surplus
0707
-20
0407
Central Government
Primary Surplus
0107
-10
90
2008Q3
Extra
Budgetary
Funds
Source: Treasury.
SSE
Social Security Unemployment
Institutions Insurance Fund
Inflation Report 2011-I
Central Bank of the Republic of Turkey
6.2. Developments in Debt Stock
The fiscal and debt management policies compliant with the prudent
monetary policy stance in 2010 as well as the faster-than-expected economic
recovery since the last quarter of 2009 helped improve fiscal balances, leading
to a significant decline in the public sector borrowing requirement amid falling
real interest rates, and thus, to a marked improvement in public debt indicators.
Moreover, both the improvement of the legal and administrative framework for
public debt management, and setting borrowing strategies with a long-term
perspective provided a significant enhancement of the debt stock structure,
insulating public debt considerably against macroeconomic shocks. Thus, 2010
was marked by an improvement in public debt ratios, a significant fall in the
real cost of borrowing, an extended average maturity of debt and an increased
share of TL-denominated debt in overall debt.
The central government debt stock increased by 7.2 percent from end2009 to 473.3 billion TL at end-2010. Changes in net domestic debt and net
external debt accounted for 23.3 billion and 9 billion TL, respectively, of the
increase in central government debt. Meanwhile, with the appreciation of the
USD against the euro in 2010, parity changes brought central government debt
down by 3.1 billion TL (Graph 6.2.1). Therefore, debt ratios continued to
decline in the third quarter of 2010. Total net public debt stock-to-GDP ratio
and the EU-defined general government nominal debt stock-to-GDP ratio fell
3.3 and 3.4 percentage points from end-2009 to 29.2 and 42.1 percent,
respectively (Graph 6.2.1).
Graph 6.2.1. Public Debt Stock Indicators
Public Debt Stock Indicators
Analysis of the Changes in Central Government Debt Stock
80
500
70
473.3
42.1
60
29.2
50
40
30
20
400
300
200
2002
2004
2006
2008
200
6
200
7
200
8
200
9
201
0*
100
Net Domestic
Borrowing
6.7
8.9
13.9
54.8
23.3
0
Net External
Borrowing**
-0.5
-2.6
4.0
5.9
9.0
Exchange Rate
Effect***
6.4
-21.2
29.9
-0.1
2.6
Parity Effect****
3.2
3.4
-1.0
0.6
-3.1
10
0
70
60
50
40
30
20
10
0
-10
-20
-30
2010/09
Total Public Net Debt Stock/GDP
EU-Defined Central Government Nominal Debt Stock/GDP
Central Government Total Debt Stock (right axis)
* Changes compared to end-2009.
** Changes in net debt denote changes adjusted for exchange rate and parity effect.
*** Changes from fluctuations in TL/USD.
**** Changes from fluctuations in USD/EUR and USD/SDR.
Source: Treasury, CBRT.
Inflation Report 2011-I
91
Central Bank of the Republic of Turkey
Depending on market conditions, the Treasury’s financing program for
2010 envisages to limit FX-denominated domestic borrowing to a maximum of
50 percent of FX-denominated domestic debt redemptions and to provide TLdenominated borrowing with fixed-rate instruments. In this regard, as of end2010, the share of exchange rate-sensitive (FX-denominated and FX-indexed)
instruments in central government debt has been lower compared to end-2009,
while the share of fixed-rate instruments has increased (Graph 6.2.2).
Graph 6.2.2. Structure of the Central Government Debt Stock
Composition of the Central Government Debt Stock
(Percent)
Vulnerability Indicators of the Central Government Debt Stock
(Percent)
29.2
90
80
26.6
100
70
70
300
60
250
50
200
38.3
60
50
37.4
40
40
121.5 150
30
100
20
30
50
32.5
10
36.0
10
20
0
0
2000 2001 2002 2003 20042005 2006 2007 2008 2009 2010
0
2000
2002
2004
FX-Denominated/FX-Indexed
2006
2008
Floating-Rate
2010
Fixed-Rate
Kamu Mevduatı/Aylık Ortalama Borç Servisi (sağ eksen)
Faize Duyarlı Borç Stoku/ Toplam Borç Stoku*
Döviz Kuruna Duyarlı Borç Stoku/ Toplam Borç Stoku**
* Debt stock sensitive to interest rate includes discounted securities with a maturity less than 1-year and government securities with floating rates.
** Debt stock sensitive to exchange rate includes external debt stock, FX-denominated and FX-indexed domestic debt stock.
Source: Treasury, CBRT.
Following the financing strategy intended to reduce the liquidity risk, the
ratio of public deposits to average monthly debt service ended 2010 at 121.5
percent (Graph 6.2.2). Amid the longer average maturity of domestic cash
borrowing, term-to-maturity of total domestic debt stock has extended to 31
months at end-2010 (Graph 6.2.3). Moreover, bond issues yielded a 6 billion
USD worth of long-term external debt in 2010 with an average maturity of 17.1
years, 8 years up from 2009 (Graph 6.2.3).
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Inflation Report 2011-I
Central Bank of the Republic of Turkey
Graph 6.2.3. Maturity of Borrowing from Domestic and External Markets
Average Maturity of Domestic Cash Borrowing and Term-toMaturity of the Domestic Debt Stock
Borrowing by Bond Issue
(Month)
50
43.7
45
40
31.0
35
30
35
9
30
8
7
25
6
20
5
20
15
4
15
10
25
10
3
2
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
2010
2009
2008
2007
2006
2005
2004
0
2003
0
2002
1
0
2001
5
2000
5
External Borrowing (right axis,billion USD)
Average Maturity of Domestic Debt Stock
Average Maturity of External Borrowing (year)
Maximum Maturity of External Borrowing (year)
Average Maturity of Domestic Cash Borrowing
Source: Treasury, CBRT.
Having fallen rapidly since early 2009, the monthly average real interest
rates at discount Treasury bill auctions declined to 0.7 percent in December
2010 (Graph 6.2.4). Concerns about public debt sustainability have eased
substantially due to the extended average maturity of domestic borrowing with
costs at historic lows.
Graph 6.2.4. Domestic Borrowing
Average Maturity of Borrowing and Interest Rates at Discount
Auctions
Total Domestic Debt Rollover Ratio
(Percent)
110
700
70
105
600
60
500
50
400
40
300
30
200
20
100
10
103.5
100
95
90
89.5
85
80
75
74.3
70
2002
2004
2006
2008
0
1202
0603
1203
0604
1204
0506
0512
0606
0612
0706
0712
0806
0812
0906
0912
1006
1012
0
2010
Maturity (day)
Average Compounded Interest Rate (right axis)
Real Interest Rate (right axis)
Source: Treasury, CBRT.
Total domestic debt rollover ratio declined to 89.5 percent in 2010, after
rising above 100 percent amid financing of the large 2009 budget deficit mostly
by domestic borrowing (Graph 6.2.4). Readings on domestic borrowing and
domestic debt service show that the domestic debt rollover ratio was above 100
percent in December, and it is expected to fall again in the first quarter of 2011.
Inflation Report 2011-I
93
Central Bank of the Republic of Turkey
According to the Treasury's domestic borrowing strategy for January-March
2011, the domestic debt rollover ratio will decline to 88.2 percent in the first
quarter of the year.
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Inflation Report 2011-I