Download 6. P F ublic inance

Central Bank of the Republic of Turkey
6. Public Finance
The central government budget deficit posted a year-on-year deterioration in the third quarter
due to the upsurge in primary expenditures and the limited rise in consumption-based taxes. Among
primary expenditures, the rise in current transfers besides public investment and public consumption
expenditures stood out. On the tax revenues front, indirect tax revenues like the SCT and VAT registered
low increases. Meanwhile, the overperformance of non-tax revenues is estimated to further improve
the budget realizations.
The MTP covering the 2015-2017 period was announced to the public. The main priorities of the
MTP are to reduce inflation as well as the current account deficit and to raise domestic savings and
growth potential in the upcoming period. To this end, a tight stance in monetary and fiscal policies will
be maintained. This stance will also be underpinned by the incomes policy and structural reforms will
gain pace. Accordingly, it is projected that fiscal discipline led by tight fiscal policy practices will be
sustained and the debt stock to GDP ratio will continue to taper off during the implementation of the
MTP (Table 6.1). The envisaged fiscal adjustment will be achieved by keeping primary expenditures
under control, which will result in a fall in the budget revenues to the GDP ratio over time.
In 2014, the central government budget balance to the GDP ratio is estimated to improve by 0.5
percentage points compared to the previous MTP and post a deficit by 1.4 percent (Table 6.1). The
expected budget recovery in 2014 is mainly attributed to non-tax revenues. Tight fiscal policies to be
implemented from 2015 to 2017, which is the MTP period, aim to gradually improve budget balances
and increase public savings.
Table 6.1.
Central Government and General Government Budget Balance
(Percent of GDP)
2013
2014*
2015**
2016**
2017**
26.1
25.4
24.3
23.6
22.8
Primary Expenditures
22.9
22.6
21.5
21.1
20.5
Interest Expenditures
3.2
2.8
2.8
2.5
2.3
24.9
24.0
23.2
22.8
22.5
Tax Revenues
20.8
19.9
20.0
19.9
19.8
Other
4.1
4.1
3.2
2.9
2.8
Budget Balance
-1.2
-1.4
-1.1
-0.7
-0.3
Primary Balance
General Government Budget
Balance
General Government Primary
Balance
2.0
1.5
1.7
1.8
2.0
-0.7
-0.8
-0.5
-0.2
0.1
2.6
2.2
2.4
2.4
2.5
EU-Defined Nominal Debt Stock
36.2
33.1
31.8
30.0
28.5
Expenditures
Revenues
* Estimate.
** MTP Target.
Source: MTP (2015-2017).
6.1. Budget Developments
The central government budget posted a deficit of 11.9 billion TL, while the primary budget
balance registered a surplus of 26.3 billion TL in the January-September period (Table 6.1.1). Tax
revenues were on track with the year-end target, while primary expenditures continued to rise
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Central Bank of the Republic of Turkey
dramatically. Thus, despite the fall in interest expenditures, the budget balance deteriorated
compared to the same period in 2013.
Table 6.1.1.
Central Government Budget Aggregates
(Billion TL)
JanuarySeptember
2013
JanuarySeptember
2014
Rate of
Increase
(Percent)
Actual/Target
(Percent)
Targeted
Annual Rate
of Increase
(Percent)
294.5
43.8
250.7
325.4
38.3
287.2
10.5
-12.7
14.5
74.6
73.6
74.7
7.0
4.0
7.4
290.0
240.3
40.4
-4.5
39.3
313.5
258.7
42.8
-11.9
26.3
8.1
7.7
6.0
-33.1
77.8
74.2
96.0
35.9
140.5
3.5
6.8
-10.8
-
Central Government Budget
Expenditures
Interest Expenditures
Primary Expenditures
Central Government Budget
Revenues
I. Tax Revenues
II. Non-Tax Revenues
Budget Balance
Primary Balance
Source: Ministry of Finance.
The central government budget deficit to the GDP ratio, which declined to 1.2 percent in 2013
amid the favorable budget performance, is estimated to increase slightly to 1.5 percent in September
(Chart 6.1.1). Meanwhile, the primary budget surplus to the GDP ratio assumed an upward course and
reached 2 percent at end-2013 after declining to 1.1 percent in the third quarter of 2012. However, the
ratio is estimated to decline to 1.1 percent in the third quarter of 2014.
Chart 6.1.1.
Chart 6.1.2.
Central Government Budget Balance
Central Government Budget Revenues and Primary
Expenditures
(Annualized, Percent of GDP)
(Annualized, Percent of GDP)
Budget Revenues
Primary Expenditures
7
26
5
5
24
24
3
3
22
22
1
1
20
20
-1
-1
-3
-3
18
18
-5
-5
16
16
-7
14
Budget Balance
7
Primary Balance
-7
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3*
2008
2009
2010
2011
2012
2013
2014
26
14
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3*
2008
2009
2010
2011
2012
2013
2014
* Estimate.
Source: Ministry of Finance.
Having surged since 2012 and reaching 22.9 percent at end-2013, the central government
primary expenditures to the GDP ratio is estimated to hit 23.2 percent in the third quarter of 2014, which
is the highest level recorded since 2008 (Chart 6.1.2). On the other hand, the central government
budget revenues to the GDP ratio increased upon robust economic activity as well as tax adjustments
in September 2012 and January 2013, reaching 24.9 percent at end-2013. This ratio is estimated to
decline to 24.3 percent in the third quarter of 2014, mainly due to slowing tax revenues based on
domestic demand.
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Inflation Report 2014-IV
Central Bank of the Republic of Turkey
The central government primary budget expenditures, which saw a hike as of the second half of
2012, increased further in the first three quarters of 2014. Accordingly, the central government primary
budget expenditures registered a year-on-year increase of 14.5 percent in the January-September
period of 2014 (Table 6.1.2).
In the January-September period, current transfers, personnel expenditures and purchase of
goods and services, which are major items in primary expenditures, registered an increase of 12.7, 15
and 13.7 percent, respectively. Personnel expenditures, government premiums to SSI and public
investment expenditures (capital expenditures) were the main drivers of the surge in primary
expenditures. On the other hand, most of the upsurge in lending resulted from the rise in loans
extended to SEEs.
Table 6.1.2.
Central Government Primary Expenditures (Billion TL)
Primary Expenditures
1. Personnel Expenditures
2. Government Premiums to SSI
3. Purchase of Goods and Services
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
7. Lending
JanuarySeptember
2013
250.7
73.3
12.0
21.6
110.9
2.9
54.9
7.4
29.3
22.3
3.8
6.7
JanuarySeptember
2014
287.2
84.4
14.1
24.6
125.0
2.0
62.3
7.8
35.1
27.0
4.3
7.8
Rate of
Increase
(Percent)
14.5
15.0
17.3
13.7
12.7
-30.8
13.5
5.0
19.7
21.1
12.8
17.1
Actual/Target
(Percent)
74.7
76.7
74.8
65.5
76.4
46.4
80.8
80.6
74.4
73.6
65.5
102.4
Source: Ministry of Finance.
In the January-September period of 2014, the central government general budget revenues
recorded a year-on-year increase of 7.4 percent (Table 6.1.3). In this period, tax revenues and non-tax
revenues increased by 7.7 and 6 percent, respectively.
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
Enterprises and Property Revenues
Interests, Shares and Fines
Capital Revenues
JanuarySeptember
2013
JanuarySeptember
2014
Rate of Increase
(Percent)
Actual/Target (Percent)
280.7
240.3
45.7
21.1
29.0
62.6
45.7
40.4
11.4
18.2
9.4
301.5
258.7
53.2
24.1
29.3
65.4
47.1
42.8
11.4
22.1
6.8
7.4
7.7
16.3
14.4
1.0
4.4
3.1
6.0
0.6
21.4
-28,0
76.7
74.2
75.1
77.6
73.8
73.1
72.6
96.0
140.3
84.8
77.4
Source: Ministry of Finance.
A closer scrutiny of tax revenues reveals that income and corporate tax revenues displayed
relatively high-rated increases in the first three quarters of 2014 and the rate of increase in tax revenues
declined from 7.6 percent to 4.6 percent after excluding income and corporate tax. This is largely
attributed to the slowdown in consumption-based tax collection. Among consumption-based tax
revenues, the SCT and import VAT revenues rose by 4.4 and 3.1 percent, respectively, while domestic
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Central Bank of the Republic of Turkey
VAT revenues increased merely by 1 percent. The details of SCT revenues show an 11.9 and 11.2
percent increase in tax revenues on tobacco products and motor vehicles, respectively, whereas tax
revenues on petroleum and natural gas products, which account for a large share of total SCT
revenues, dropped by 1.2 percent. Even though non-tax revenues rose by only 6 percent, the
realization ratio is quite high compared to the year-end target amid the higher-than-targeted profit
transfers from the CBRT and state banks to the budget.
The annual rate of increase in real tax revenues, having turned positive amid tax hikes in
September 2012 as well as the base effect, started to slacken in the third quarter of 2013 and had
negative values in the second quarter of 2014. Driven partially by the base effect and partially by the
relatively high collection in income and corporate taxes, real tax revenues registered an increase in the
third quarter of 2014, albeit limited (Chart 6.1.3). Among consumption-based tax revenues, domestic
VAT and import VAT revenues receded by 12.4 and 3.3 percent in real terms, respectively, while the
SCT revenues remained unchanged in the third quarter of 2014 (Chart 6.1.4).
Chart 6.1.3.
Chart 6.1.4.
Real Tax Revenues
Real VAT and SCT Revenues
(Annual Percent Change)
25
25
20
20
(Annual Percent Change)
Real Domestic VAT Revenues
60
Real SCT Revenues
Real VAT Revenues on Imports
50
60
50
40
40
30
30
15
15
10
10
20
20
5
10
10
0
0
0
0
-5
-5
-10
-15
5
1.2
-10
-10
-20
-20
-10
-30
-30
-15
-40
123412341234123412341234123
2008
2009
2010
2011
2012
2013
2014
-40
123412341234123412341234123
2008
2009
2010
2011
2012
2013 2014
Source: Ministry of Finance.
6.2. Developments in the Public Debt Stock
Public debt stock indicators displayed a favorable outlook in the third quarter of 2014. The total
public net debt stock and the EU-defined general government nominal debt stock to GDP ratios
continued to decline. While the share of fixed-rate securities in the total debt stock increased, the
average maturity of the debt stock extended and the real cost of borrowing has remained low in
recent months.
The central government debt stock stood at 603.2 billion TL by the end of September 2014
(Chart 6.2.1). In the second quarter of 2014, the total public net debt stock and the EU-defined general
government nominal debt stock to GDP ratios decreased by 1.4 and 1.7 points, respectively,
compared to end-2013 figures (Chart 6.2.1).
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Inflation Report 2014-IV
Central Bank of the Republic of Turkey
Chart 6.2.1.
Chart 6.2.2.
Public Debt Stock Indicators
Composition of the Central Government Debt
Stock*(Percent)
Total Public Net Debt Stock
(Percent of GDP)
FX-Denominated/FX-Indexed*
Floating-Rate
EU-Defined General Government Nominal Debt Stock
(Percent of GDP)
Fixed-Rate
700
100
100
70
600
60
31.2
603.2
80
32.3
Central Government Total Debt Stock
(Billion TL, right axis)
80
80
500
300
30
40
40
0
2007
2009
2011
20
0
0
2005
37.2
36.2
20
100
10
2003
60
200
11.3
20
60
32.6
400
34.5
40
30.5
50
0
2001
2013 2014/9
2003
2005
2007
2009
2011
2013
* FX-Denominated/FX-Indexed debt stock includes external debt stock and FX-denominated and FX-indexed domestic debt stock.
Source: Treasury.
The share of fixed-rate securities in the total debt stock increased slightly from end-2013
(Chart 6.2.2). An analysis of the interest and exchange rate structure of domestic borrowing suggests
that the share of fixed-rate borrowing registered a year-on-year decline in the first eight months of 2014.
The ratio of public deposits to average monthly debt service stands at 205.8 percent. The average
term-to-maturity of the domestic debt stock rose to 56 months (Chart 6.2.3). Meanwhile, in the first nine
months of 2014, external borrowing by bond issues amounted to 6.3 billion USD, with the average
maturity standing at 14.8 years (Chart 6.2.4).
Chart 6.2.3.
Chart 6.2.4.
Average Maturity of the Domestic Cash Borrowing
and Term-to-Maturity of the Domestic Debt Stock
Borrowing By Bond Issue
(Month)
External Borrowing (billion USD, right axis)
Average Maturity of Domestic Debt Stock
Average Maturity of External Borrowing (year)
Average Maturity of Domestic Cash Borrowing
75
75
68.8
56.0
60
Maximum Maturity of External Borrowing (year)
35
8
7
30
60
6
25
45
45
30
30
5
20
4
15
3
10
2
15
2014/9
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
0
2003
1
0
2002
2014/9
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
0
2000
0
5
2001
15
Source: Treasury.
The domestic debt rollover ratio stood at 81.3 percent at the end of August 2014 (Chart 6.2.5).
Having plummeted from early 2009 to early 2011, the average real interest rate1, which rose in the
second half of 2013 due to global financial fluctuations and the cautious monetary policy stance, has
recently recorded low levels (Chart 6.2.6).
Real interest rates are calculated by subtracting the 12-month-ahead CPI expectation of the CBRT Survey of Expectations from nominal interest
rates (average annual compounded interest rate at the Treasury’s TL-denominated zero-coupon securities auction).
1
Inflation Report 2014-IV
77
Central Bank of the Republic of Turkey
Chart 6.2.5.
Chart 6.2.6.
Total Domestic Debt Rollover Ratio
Average Maturity and Interest Rates of Borrowing at
Discount Auctions
(Percent)
Maturity (day)
Average Compounded Interest Rate (right axis)
110
110
100
100
Real Interest Rate (right axis)
30
600
25
500
20
400
15
300
10
200
5
100
0
90
84.5
80
81.3
70
80
70
2003
2005
2007
2009
2011
2013
0
-5
1203
0604
1204
0605
1205
0606
1206
0607
1207
0608
1208
0609
1209
0610
1210
0611
1211
0612
1212
0613
1213
0614
90
700
Source: Treasury, CBRT.
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Inflation Report 2014-IV