Download 6. P F ublic inance

Central Bank of the Republic of Turkey
6. Public Finance
The
faster-than-expected
economic
recovery
and
falling
interest
expenditures helped enhance Turkey's fiscal outlook (Chart 6.1). Furthermore,
the budget performance continues to improve as of the first quarter of 2011.
The increased tax revenues amid robust domestic demand and the decline in
interest expenditures were the major drivers of the improved budget balances
in this period. In addition, the relative slowdown in the growth of primary
expenditures also contributed to the improvement in budget balance.
Chart 6.1.
Central Government Budget Balance and EU-Defined Public Debt Stock
(Percent of GDP)
40.6
36.8
2013*
40
38.8
6
2012*
60
2.8
9
2.4
80
2011*
Public Debt Stock
Maastricht Criterion: 60%
Budget Deficit
12
1.6
3
20
2010
2009
2008
2007
2006
2005
2004
2003
2002
2013*
2012*
2010
2011*
2009
2008
2007
2006
2005
2004
2003
2002
2001
2001
0
0
* MTP (2011-2013) targets.
Source: Ministry of Finance.
Fiscal targets available in the October 2010 MTP for 2011-2013 hint at a
gradual decline in the ratio of public expenditures to GDP. Therefore, the
medium-term 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. Hence, the public sector is expected to exert no significant pressure
on inflation in the medium term. However, in order to maintain fiscal discipline
and ensure that Turkey continues to have more positive readings than other
emerging economies, strengthening the fiscal structure by implementing the
institutional and structural reforms envisaged in the MTP remains critical.
6.1. Budget Developments
The central government budget produced a deficit of TL 4.1 billion in the
first quarter of 2011, while the primary balance delivered a surplus of TL 9.8 billion
(Table 6.1.1). Higher tax revenues fueled by economic recovery and falling
Inflation Report 2011-II
75
Central Bank of the Republic of Turkey
interest expenditures were the main drivers of the year-on-year improvement in
the budget balance. In addition, the relative slowdown in the growth of primary
expenditures helped bring the budget deficit down.
Table 6.1.1.
Central Government Budget Aggregates
(Billion TL)
JanuaryMarch 2010
JanuaryMarch 2011
68.4
15.0
53.4
57.0
47.9
6.8
-11.3
3.7
Central Government Expenditures
Interest Expenditures
Primary Expenditures
Central Government Revenues
I. Tax Revenues
II. Non-Tax Revenues
Budget Balance
Primary Balance
Rate of Increase
(Percent)
Actual/Target
(Percent)
72.9
6.6
23.3
14.0
58.9
68.7
57.5
8.7
-4.1
-6.9
10.3
20.5
19.9
27.7
-
29.4
22.2
24.6
24.7
22.1
-
9.8
-
70.5
Source: Ministry of Finance.
Having improved since the first quarter of 2010, central government
budget balance and primary budget balance to GDP ratios deteriorated
slightly amid the rapid increase in primary expenditures during the fourth
quarter. On the other hand, the first quarter’s favorable budget outturn helped
improve both ratios (Chart 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, resumed in the first quarter of 2011 after the pause in the last quarter
of 2010. Meanwhile, notwithstanding the slight slowdown during the first three
quarters of 2010, the primary expenditures to GDP ratio increased in the last
quarter before falling back in the first quarter of 2011 (Chart 6.1.1).
Chart 6.1.1.
Central Government Budget
(Annualized, Percent of GDP)
Budget Balance
Budget Balance
Budget Revenues and Primary Expenditures
Primary Balance
Budget Revenues
8
24
6
23
Primary Expenditures
22
4
1.3
2
21
20
0
19
-2
18
-4
-2.8
-6
17
16
15
-8
14
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1*
2007
2008
2009
2010
2011
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1*
2007
2008
2009
2010
2011
* Estimate.
Source: Ministry of Finance.
Central government primary expenditures increased slightly by 10.3
percent year-on-year in the first quarter of 2011. The slight increase in primary
expenditures was mainly due to the 6.6 percent increase in current transfers, the
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Inflation Report 2011-II
Central Bank of the Republic of Turkey
major component of primary expenditures. Personnel expenditures, another
major component of primary expenditures, were up 15.7 percent, while
purchase of goods and services decreased by 3.3 percent. Meanwhile, capital
expenditures increased by about 48.2 percent, implying that public investments
made a positive contribution to GDP growth in the first quarter of 2011
(Table 6.1.2).
Table 6.1.2.
Central Government Primary Expenditures
(Billion TL)
Primary 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
JanuaryMarch 2010
53.4
16.2
2.8
4.2
1.1
1.1
27.7
1.0
14.8
3.2
6.6
1.0
0.3
JanuaryMarch 2011
58.9
18.8
3.3
4.8
1.2
1.1
29.6
0.4
15.7
2.8
7.6
1.5
0.3
Rate of
Increase
(Percent)
10.3
15.7
20.1
13.6
15.6
-2.8
6.6
-61.6
6.4
-11.3
15.0
48.2
-5.6
Actual/Target
(Percent)
22.2
26.0
26.0
15.9
12.2
22.1
25.5
7.4
25.2
46.8
26.4
6.9
6.2
Source: Ministry of Finance.
General budget revenues increased by 20.9 percent year-on-year in the
first quarter of 2011. Tax revenues were up 19.9 percent and non-tax revenues
increased by 27.7 percent on soaring capital revenues (Table 6.1.3). In
particular, the substantial increase in consumption based tax revenues such as
domestic VAT and VAT on imports indicates that consumption demand remains
strong. Additionally, the record high temporary corporate tax payments also
contributed to the rapid increase in tax revenues. SCT revenues increased at a
relatively slower pace owing to lower SCT payments on tobacco products and
the limited increase in SCT on oil and natural gas products.
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
JanuaryMarch 2010
JanuaryMarch 2011
Rate of Increase
(Percent)
Actual/Target
(Pecent)
54.7
47.9
9.6
4.6
5.8
11.7
7.7
6.8
1.7
4.6
0.1
66.2
57.5
10.4
6.6
7.3
13.3
10.3
8.7
2.6
4.3
1.3
20.9
19.9
8.6
41.7
26.3
14.0
34.1
27.7
57.1
-6.8
-
24.4
24.7
22.0
28.3
27.4
21.8
25.1
22.1
36.0
20.6
13.0
Source: Ministry of Finance.
Inflation Report 2011-II
77
Central Bank of the Republic of Turkey
The contraction in real tax revenues since the third quarter of 2008 has
been replaced by a significant growth as of the fourth quarter of 2009 with the
recovery of private consumption demand. After a robust first quarter, the
annual rate of increase in real tax revenues slowed down slightly on waning
base effects in the consecutive two quarters before rising again in the last
quarter of 2010 (Chart 6.1.2). Real tax revenues increased by 14.9 percent yearon-year in the first quarter of 2011. SCT and domestic VAT revenues, major
components of tax revenues, increased by 9.2 and 20.9 percent year-on-year,
respectively, in real terms (Chart 6.1.2).
Chart 6.1.2.
Real Tax Revenues
(Percent of GDP)
Real Tax Revenues
Real VAT and SCT Revenues
(Annual Percent Change)
(Annual Percent Change)
Real Domestic VAT Revenues
20
14.9
15
Real SCT Revenues
40
30
10
20
5
10
0
0
-5
-10
-10
-20
-15
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1
2007
2008
2009
2010
2011
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1
2007
2008
2009
2010
2011
Source: Ministry of Finance.
The program-defined consolidated public sector and the central
government primary balance have improved throughout the last quarter of
2009 and the first three quarters of 2010, but deteriorated significantly in the last
quarter of 2010 due to the rapid increase in primary expenditures. With the
favorable fiscal performance in the first quarter of 2011, the program-defined
primary balance started to improve again (Chart 6.1.3). Meanwhile, primary
balances of extrabudgetary funds and the Unemployment Insurance Fund
improved year-on-year during the last quarter of 2010, whereas primary
balances of SEE and social security institutions deteriorated (Chart 6.1.3).
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Inflation Report 2011-II
Central Bank of the Republic of Turkey
Chart 6.1.3.
Primary Balance
Program-Defined Primary Balance
Consolidated Public Sector Primary Balance: Selected Items
(Annualized, Billion TL)
(Annualized, Billion TL)
Central Government Primary Surplus
Consolidated Public Sector Primary Surplus
40
2008Q4
2009Q4
2010Q4
7
6
30
5
20
3.4
4
10
4.9
3
2
0
0.8
1
-1.1
-10
-1
0107
0407
0707
1007
0108
0408
0708
1008
0109
0409
0709
1009
0110
0410
0710
1010
0111
-20
0.3
0
-0.6
-2
Extra Budgetary
Funds
SSE
Social Security Unemployment
Institutions
Insurance Fund
Source: Treasury.
6.2. Developments in the Debt Stock
The fiscal and debt management policies consistent 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, thus
public debt stock indicators. 2010 was marked by a decline in public debt
ratios, a significant fall in the real cost of borrowing, an extended average
maturity of debt, a decreased share of interest rate and exchange ratesensitive debt in overall debt and a reduced domestic debt rollover ratio. This
favorable outlook also continued into the first quarter of 2011.
The central government debt stock increased by 2.6 percent from end2010 to TL 485.9 billion at end-March 2011. Changes in net domestic debt and
net external debt accounted for TL 7.1 billion and TL 3.0 billion, respectively, of
the increase in central government debt. Meanwhile, with the depreciation of
the USD against the euro, parity changes brought central government debt up
by TL 2.4 billion (Chart 6.2.1).
Public debt ratios, which increased in 2009 on low primary surplus
performance and economic contraction, declined in 2010 as the above factors
have reversed. The ratios of total net public debt stock and EU-defined general
government nominal debt stock to GDP declined by 3.8 and 3.9 percentage
points from end-2009 to 28.7 and 41.6 percent, respectively (Chart 6.2.1).
Inflation Report 2011-II
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Central Bank of the Republic of Turkey
Chart 6.2.1.
Public Debt Stock Indicators
Public Debt Stock Indicators
Analysis of the Changes in Central Government Debt Stock
(Billion TL)
Total Public Net Debt Stock (Percent of GDP)
80
70
60
50
40
30
20
10
0
-10
-20
-30
EU-Defined Central Government Nominal Debt Stock (Percent
of GDP)
Central Government Total Debt Stock (Billion TL, right axis)
600
70
485.9 500
60
400
41.6
50
300
28.7
40
30
200
20
100
10
0
0
2003
2005
2007
2009
2006
2007
2008
2009
2010
2011/3*
Net Domestic
Borrowing
6.7
8.9
13.9
54.8
23.3
7.1
Net External
Borrowing**
-0.5
-2.6
4.0
5.9
9.0
3.0
Exchange Rate
Effect***
6.4
-21.2
29.9
-0.1
2.6
0.2
Parity Effect****
3.2
3.4
-1.0
0.6
-3.1
2.4
2011/03
* Changes compared to end-2010.
** 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.
The Treasury’s financing program for 2011 has been formulated based on
an approach to limit the liquidity, interest and foreign exchange sensitivity of the
debt stock. In this regard, the increase in the share of fixed-rate instruments has
continued into March 2011 (Chart 6.2.2).
Chart 6.2.2.
Structure of the Central Government Debt Stock
Composition of the Central Government Debt Stock
(Percent)
FX-Denominated/FX-Indexed
Floating-Rate
Vulnerability Indicators of the Central Government Debt
Stock
(Percent)
Public Deposits/Average Monthly Debt Service (right
axis)
Interest Rate-Sensitive Debt Stock/Total Debt Stock*
Fixed-Rate
26.6
90
80
27.1
100
37.4
60
50
36.2
70
Exchange Rate-Sensitive Debt Stock/Total Debt Stock**
70
300
60
250
50
200
40
150
40
30
20
36.7
36.0
30
10
100
20
50
10
0
0
2001
2003
2005
2007
2009
2011/03
0
2001
2003
2005
2007
2009
2011/03
* 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.
The financing strategy implemented to reduce liquidity risk also continues
in 2011. The ratio of public deposits to average monthly debt service has been
121.8 percent as of the first quarter of 2011 (Chart 6.2.2). Amid the significantly
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Inflation Report 2011-II
Central Bank of the Republic of Turkey
increased average maturity of domestic cash borrowing, term-to-maturity of
total domestic debt stock increased to 34.2 months in March 2011 (Chart 6.2.3).
Moreover, bond issues have yielded a long-term external debt of USD 3.2 billion
in the first four months of 2011, with an average maturity slightly down to 16.3
years from 2010 (Chart 6.2.3).
Chart 6.2.3.
Maturity of Borrowing from Domestic and External Markets
Borrowing by Bond Issue
Average Maturity of Domestic Cash Borrowing and Termto-Maturity of the Domestic Debt Stock
(Month)
External Borrowing (right axis,billion USD)
Average Maturity of External Borrowing (year)
Maximum Maturity of External Borrowing (year)
Average Maturity of Domestic Debt Stock
Average Maturity of Domestic Cash Borrowing
60
52.8
50
40
35
7
30
6
25
5
20
4
15
3
34.2
30
20
2011/04
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2010
2011/03
2009
2008
2007
2006
2005
0
2004
0
2003
0
2002
1
2001
2
5
2000
10
10
Source: Treasury, CBRT.
Having fallen rapidly since early 2009, the monthly average real interest
rates at discount Treasury bill auctions remain low despite the slight increases in
February, March and April 2011 (Chart 6.2.4). The substantially extended
average maturity and the low cost of domestic borrowing support the
favorable outlook for public debt sustainability.
Chart 6.2.4.
Domestic Borrowing
Total Domestic Debt Rollover Ratio
(Percent)
Average Maturity of Borrowing and Interest Rates at
Discount Auctions
110
103.5
105
100
800
Maturity (day)
Average Compounded Interest Rate (right axis)
Real Interest Rate (right axis)
70
700
60
600
95
91.4
90
50
500
40
400
30
300
80
200
75
100
70
0
2003
2005
2007
2009
2011/02
20
10
0
0212
0306
0312
0406
0412
0506
0512
0606
0612
0706
0712
0806
0812
0906
0912
1006
1012
89.3
85
Source: Treasury, CBRT.
Inflation Report 2011-II
81
Central Bank of the Republic of Turkey
Domestic debt rollover ratio was 91.4 percent for January-February 2011
and is expected to decline to 85.7 percent in the first half of 2011 as envisaged
by the Treasury's domestic borrowing strategy for April-June 2011 (Chart 6.2.4).
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Inflation Report 2011-II