Download 6. P F ublic inance

Central Bank of the Republic of Turkey
6. Public Finance
In the first three quarters of 2015, the central government primary surplus posted a year-on-year
increase, while the central government budget deficit edged slightly higher due to the relative upsurge
in interest expenditures. Primary expenditures maintained the sharp uptrend of the recent years, while
tax revenues performed better than expected and hovered above the target. In particular, indirect tax
revenues such as SCT and VAT increased at a faster pace.
The MTP covering the 2016-2018 period has been announced. The MTP states that the fiscal
policy will be implemented to support economic stability, to enhance growth potential, to reduce the
current account deficit by increasing domestic savings and to contribute to price stability. To ensure
that the fiscal policy helps achieve these goals, the budget will be allowed to become more flexible
and the public savings-investment gap will be gradually narrowed by curbing the rate of increase in
public spending and the public sector borrowing requirement. Moreover, public spending on
infrastructure investments, trainings and R&D will be prioritized in order to support economic growth.
Meanwhile, it is underlined that the quality of public revenues will be improved and therefore nonrecurring revenues will no longer be used to finance policies that permanently raise the level of public
spending in the medium to long term. Thus, tight fiscal standards are expected to help maintain fiscal
discipline and bring the debt stock to GDP ratio further down gradually over the MTP period (Table 6.1).
This fiscal adjustment is likely to be achieved by controlling the rate of increase in primary expenditures,
and accordingly, the tax revenues to GDP ratio will edge down over time.
In 2015, the central government budget deficit to GDP is estimated to remain unchanged yearon-year at 1.3 percent (Table 6.1). As evidenced by the MTP projections for realizations, public
spending was significantly higher than the target in 2015. However, thanks to the strong performance of
tax revenues, the budget deficit is expected to deviate only marginally.
Table 6.1.
Central Government and General Government Budget Balance
(Percent of GDP)
2014
2015*
2016**
2017**
2018**
25.6
26.1
25.3
24.7
23.9
Primary Expenditures
22.8
23.3
22.7
22.2
21.5
Interest Expenditures
2.9
2.8
2.6
2.5
2.4
24.3
24.8
24.5
24.0
23.5
Tax Revenues
20.1
21.1
20.7
20.6
20.5
Other Revenues
4.2
3.8
3.8
3.4
3.0
Budget Balance
-1.3
-1.3
-0.7
-0.6
-0.4
Primary Balance
General Government Budget
Balance
General Government Primary
Balance
1.5
1.5
1.8
1.9
2.0
-0.6
0.0
-0.1
-0.2
0.0
2.3
2.9
2.5
2.4
2.5
EU-Defined Nominal Debt Stock
33.5
34.0
32.8
31.3
30.0
Expenditures
Revenues
* Forecast.
** MTP.
Source: MTP (2016-2018).
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Central Bank of the Republic of Turkey
6.1. Budget Developments
During January-September 2015, the central government budget balance registered a deficit of
13.5 billion TL while the primary budget balance had 31.3 billion TL in surplus (Table 6.1.1). The central
government primary balance recorded an increasing surplus whereas the central government budget
balance posted a slightly higher deficit due to the relatively faster rise in interest expenditures in the first
nine months of 2015 compared to the same period of the previous year.
Table 6.1.1.
Central Government Budget Aggregates
(Billion TL)
2014
JanuarySeptember
2015
JanuarySeptember
Rate of
Increase
(Percent)
Actual/Target
(Percent)
325.4
367.7
13.0
77.7
38.3
44.8
17.0
82.9
Primary Expenditures
Central Government Budget
Revenues
I. Tax Revenues
287.2
322.9
12.4
77.1
313.5
354.2
13.0
78.4
258.7
298.3
15.3
76.6
II. Non-Tax Revenues
42.8
42.2
-1.6
81.9
Budget Balance
-11.9
-13.5
-
-
Primary Balance
26.3
31.3
18.8
94.8
Central Government Budget
Expenditures
Interest Expenditures
Source: Ministry of Finance.
The central government budget deficit to the GDP ratio, which rose slightly in 2014, is estimated
to hit 1.3 percent in the third quarter of 2015, remaining unchanged from the end-2014 level
(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. This ratio
dropped to 1.6 percent in 2014 and is estimated to rise to 1.7 percent in the third quarter of 2015.
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 Balance
3
Primary Balance
3
1
Budget Revenues
26
Primary Expenditures
26
24
24
22
22
20
20
18
18
16
16
1
-1
-1
-3
-3
-5
-5
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3*
2010
2011
2012
2013
2014
2015
14
14
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3*
2010
2011
2012
2013
2014
2015
* Forecast.
Source: Ministry of Finance.
Having surged since 2012 and reaching 22.8 percent at end-2013, the central government
primary expenditures to GDP ratio hit 23.1 percent in the third quarter of 2014, which is the highest level
recorded since 2008. This ratio fell slightly to 22.8 percent in the last quarter of 2014 and is expected to
creep up to 23.1 percent in the third quarter of 2015 (Chart 6.1.2). On the other hand, the central
government budget revenues to GDP ratio increased upon the relatively robust economic activity as
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well as tax adjustments in September 2012 and January 2013, reaching 24.8 percent at end-2013. This
ratio dropped to 24.3 percent in 2014, mainly due to slowing tax revenues based on domestic demand,
and is estimated to go up to 24.8 percent in the third quarter of 2015.
Trending upwards since the second half of 2012, the central government primary budget
expenditures remained on the rise in the first nine months of 2015. Accordingly, the central government
primary budget expenditures registered a year-on-year increase of 12.4 percent during JanuarySeptember 2015 (Table 6.1.2).
Table 6.1.2.
Central Government Primary Expenditures (Billion TL)
Primary Expenditures
1. Personnel Expenditures
2. Government Premiums to SSI
3. Purchases of Goods and Services
4. Current Transfers
a) Duty Losses
b) Health, Pension and Social Benefits
c) Agricultural Support
d) Reserved Share Revenues
5. Capital Expenditures
6. Capital Transfers
7. Lending
2014
JanuarySeptember
287.2
84.4
14.1
24.6
125.0
2.0
62.3
7.8
35.1
27.0
4.3
7.8
2015
JanuarySeptember
322.9
95.0
15.5
28.4
138.8
3.0
63.3
8.4
41.6
29.9
5.6
9.7
Rate of
Increase
(Percent)
12.4
12.6
9.9
15.3
11.1
50.2
1.6
8.4
18.6
10.8
30.1
23.6
Actual/Target
(Percent)
77.1
79.8
76.3
69.0
78.7
67.4
78.5
84.4
76.5
73.1
81.7
91.8
Source: Ministry of Finance.
In the first nine months of 2015, purchases of goods and services as well as personnel
expenditures, which are major items in primary expenditures, registered an increase of 15.3 and 12.6
percent, respectively, while current transfers were only up by 11.1 percent. The relatively limited rise in
current transfers was caused by the mere increase by 1.6 percent in health, pension and social benefit
expenditures. The shares reserved for other public institutions and enterprises from the central
government revenues recorded a striking upswing of 18.6 percent, owing not only to the high central
government tax revenue performance in the first nine months of 2015, but also to the termination of
deductions made for debts of local administrations. Capital expenditures rose upon the rise in highway
construction expenditures, while capital transfers increased notably due to capital transfers to special
provincial administrations. The upsurge by 23.6 percent in lending resulted from the rise in loans
extended to SEEs.
During January-September 2015, the central government general budget revenues recorded a
year-on-year increase of 12.9 percent (Table 6.1.3). In this period, tax revenues performed strongly and
rose by 15.3 percent, while non-tax revenues dropped slightly. A closer scrutiny of tax revenues reveals
that the collection of consumption-based taxes and the income tax recorded a year-on-year upsurge
in the first nine months of 2015. Meanwhile, corporate tax revenues hardly increased because of the
weaker profitability of corporations and institutions. As income tax revenues are largely provided
through withholding taxes on salaries and wages, the high increase in minimum wages in 2015
improved the collection of income taxes. Among consumption-based taxes, revenues from SCT,
domestic VAT and VAT on imports recorded an uptick by 18.5, 17.8 and 13.4 percent, respectively. The
details of SCT revenues show a jump of 45.2 percent in tax revenues on motor vehicles. The increase in
the collection of taxes on petroleum and natural gas products, which account for a large share of total
SCT revenues, remained relatively low at 11.9 percent.
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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
2014
JanuarySeptember
2015
JanuarySeptember
Rate of Increase
(Percent)
Actual/Target
(Percent)
301.5
258.7
53.2
24.1
29.3
65.4
47.1
42.8
11.4
22.1
6.8
340.4
298.3
61.9
24.5
34.5
77.4
53.4
42.2
13.2
19.7
7.2
12.9
15.3
16.5
1.5
17.8
18.5
13.4
-1.6
15.2
-10.6
6.2
77.f.,2
76.6
75.2
67.8
78.0
82.4
71.1
81.9
138.8
68.4
68.9
Source: Ministry of Finance.
The unchanged performance of non-tax revenues on an annual basis is mainly attributed to the
base effect generated by the one-time inclusion of 3 billion TL in the budget in March 2014 from the
special provincial administrations, which were annulled by Law No. 6360. On the other hand,
privatization revenues, which had been 5.3 billion TL in the first nine months of 2014, amounted to 6.1
billion TL in the same period of 2015.
Having turned positive amid tax rate hikes in September 2012 as well as the base effect, the
annual rate of change in real tax revenues started to slacken in the third quarter of 2013, and real tax
revenues remained unchanged year-on-year in the last quarter of 2014. Yet, real tax revenues posted
a yearly increase of 6.7 percent in the third quarter of 2015 (Chart 6.1.3). The analysis of this increase by
sub-items suggests that revenues from domestic VAT, SCT and VAT on imports, which are counted
among consumption-based taxes, surged by 19.5, 9.3 and 3 percent in real terms, respectively
(Chart 6.1.4).
Chart 6.1.3.
Chart 6.1.4.
Real Tax Revenues
Real VAT and SCT Revenues
(Annual Percent Change)
(Annual Percent Change)
Real Domestic VAT Revenues
Real SCT Revenues
Real VAT Revenues on Imports
25
25
50
50
20
20
40
40
15
15
30
30
10
10
20
20
5
6.7 5
10
10
0
0
0
0
-5
-5
-10
-10
-20
-10
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3
2010
2011
2012
2013
2014
2015
-10
-20
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3
2010
2011
2012
2013
2014
2015
Source: Ministry of Finance.
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6.2. Developments in the Public Debt Stock
The central government debt stock reached 689.8 billion TL in September 2015 (Chart 6.2.1). In
the first half of the year, the ratio of the total public net debt stock to GDP decreased by 2.2 points
from end-2014, while the EU-defined general government nominal debt stock to GDP ratio remained
virtually unchanged (Chart 6.2.1).
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)
Central Government Total Debt Stock
(Billion TL, right axis)
80
Fixed-Rate
800
Floating-Rate
FX-Denominated/FX-Indexed
100
100
32.2
689.8
80
80
600
40
29.4
33.7
60
400
60
26.4
60
36.5
EU-Defined General Government Nominal Debt Stock
(Percent of GDP)
0
2005
2007
2009
2011
20
0
0
2003
38.4
200
8.5
20
40
37.1
40
0
2001
2013 2015/6
20
2003 2005
2007
2009
2011
2013 2015/9
* FX-Denominated/FX-Indexed debt stock includes external debt stock and
FX-denominated and FX-indexed domestic debt stock.
Source: Treasury.
Source: Treasury.
The share of fixed-rate securities in the total debt stock was slightly down from 2014 (Chart 6.2.2).
With respect to the interest rate structure of domestic borrowing, the share of fixed-rate borrowing
increased annually in the first eight months of 2015. Meanwhile, the ratio of public deposits to average
monthly debt service stands at 313.9 percent. The average term-to-maturity of the domestic debt stock
equaled 56 months (Chart 6.2.3). External borrowing by bond issues amounted to 3 billion USD, with an
average maturity of 19.7 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
80
72.9
70
56.0
60
50
80
35
70
30
60
Maximum Maturity of External Borrowing (year)
8
7
6
25
50
5
20
40
40
30
30
4
15
2014
1
0
2015/9
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2
2003
2015/9
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
0
2002
0
2001
10
0
2000
10
5
2002
20
2001
20
3
10
Source: Treasury.
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The domestic debt rollover ratio ended August 2015 at 86.9 percent (Chart 6.2.5). The average
real interest rate1 has been on the rise since early 2015 (Chart 6.2.6).
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
700
100
90
86.9
Real Interest Rate (right axis)
30
600
25
500
20
400
15
300
10
200
5
100
0
80
81.5
2003
2005
2007
2009
2011
2013
2015/8
-5
1203
0604
1204
0605
1205
0606
1206
0607
1207
0608
1208
0609
1209
0610
1210
0611
1211
0612
1212
0613
1213
0614
1214
0615
0
70
Source: Treasury, CBRT.
Real interest rates are calculated by subtracting the 12-month-ahead inflation expectations 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
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Box
Public Debt Stock and Budget Deficit Developments: An International Comparison
6.1
Fiscal balances improved substantially in the Turkish economy with the uninterrupted implementation of a
tight fiscal policy on the back of structural reforms and measures for fiscal discipline introduced in the
aftermath of the crisis in February 2001. Having hovered at around 12 percent in 2001, the general
government budget deficit to GDP ratio fell below the Maastricht criterion of 3 percent in 2005 with
tightened fiscal policy, and even reached positive values in 2006, thus yielding a surplus (Chart 1). Likewise,
the public debt stock to GDP ratio dropped below the Maastricht criterion of 60 percent in 2004, down from
78 percent in 2001, and remained on the decline in the following years (Chart 2).
Chart 1. General Government Budget Deficit
Chart 2. Public Debt Stock
(Percent of GDP)
(Percent of GDP)
-12
80
-9
60
-6
40
-3
20
0
0
3
2001
2003
2005
2007
2009
2011
Source: Ministry of Development.
Thanks
2001
2013
2003
2005
2007
2009
2011
2013
Source: Treasury.
to the favorable fiscal performance, the borrowing cost of the Treasury has dropped markedly
starting from end-2003 (Chart 3) and the maturity of borrowing began to extend significantly (Chart 4).
Following the dramatic fall in the public debt stock to GDP ratio, the debt sustainability issue, one of the
most fundamental items in the economic itineraries of the post-2001 period, has been off the agenda as of
2005.
Chart 3. Real Interest Rates
Chart 4. Average Maturity of Borrowing
(2-Year Treasury Bond Rates)
(Day)
700
40
36
600
32
28
500
24
400
20
16
300
12
8
200
4
100
Source: BIST, CBRT.
Inflation Report 2015-IV
0115
0114
0113
0112
0111
0110
0109
0108
0107
0106
0105
0104
0103
0102
-4
0
0801
0402
1202
0803
0404
1204
0805
0406
1206
0807
0408
1208
0809
0410
1210
0811
0412
1212
0813
0414
1214
0815
0
Source: Treasury.
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Central Bank of the Republic of Turkey
The comprehensive fiscal stimulus packages and financial relief program implemented in 2009 against the
adverse effects of the global crisis caused public deficit and debt stock to soar globally, particularly across
advanced economies. In addition, the crisis-led economic contraction caused tax revenues to fall,
accelerating the rise in budget deficits. In line with the global fiscal trends, budget deficit and debt stock to
GDP ratio also increased notably in Turkey in 2009. In the subsequent years, however, the gradual
withdrawal of fiscal incentives, collection of higher tax revenues on the back of the robust economic
recovery and steps taken to promote budget discipline helped improve fiscal balances (Charts 1 and 2),
causing domestic borrowing rates to drop dramatically and the maturity of borrowing to re-settle on an
upward track (Charts 3 and 4).
The lower output capacity and reduced tax revenues during the global crisis had negative repercussions
on budget balances across emerging economies, including Turkey. The ratio of budget deficit to GDP
adjusted for purchasing power parity in such economies climbed to 5 percent in 2009 from almost zero in
2007 (IMF, 2010). Yet, the fact that the emerging economies had relatively lower budget deficit and debt
stock at the onset of the crisis and that they adopted less comprehensive fiscal stimulus packages
afterwards had a major impact on their fiscal performance. Accordingly, emerging economies saw their
budget balances recover more rapidly during the post-crisis period, also given their relatively faster
rebound.
On the fiscal balances front, Turkey performed much stronger than other emerging market economies,
particularly after the global crisis, owing to the sustained fiscal discipline. According to IMF forecasts,
Turkey’s general government budget balance to GDP ratio and general government primary balance to
GDP ratio are expected to be -1.4 percent (Chart 5) and 1.4 percent (Chart 6), respectively, in 2015. Both
ratios are notably better than those for other emerging economies.
Chart 5. 2015 Forecasts for General Government
Budget Balance
Chart 6. 2015 Forecasts for General Government
Primary Balance
(Percent of GDP)
-8
(Percent of GDP)
-7
2
1
-6
0
-5
-4
-1
-3
-2
-2
-3
Philippines
Turkey
Peru
Romania
China
Thailand
Chile
Indonesia
Hungary
Poland
Colombia
Malaysia
Russia
Argentina
Mexico
South Africa
Ukraine
Croatia
Brazil
India
0
-4
Philippines
Turkey
Brazil
Ukraine
Hungary
Colombia
Romania
Peru
Poland
Croatia
Indonesia
South Africa
Thailand
China
Mexico
Malaysia
Argentina
Chile
India
Russia
-1
Source: IMF Fiscal Monitor, April 2015.
Similarly, the IMF also estimates that Turkey’s public debt stock to GDP ratio and gross financing need2 to
GDP ratio will amount to 33.4 percent (Chart 7) and 5.7 percent (Chart 8), respectively, in 2015. Both ratios,
which are critical for macroeconomic stability, appear significantly lower than the averages of emerging
economies.
Gross financing need for a certain year is the sum of the public borrowing requirement (general government budget deficit) and the maturing
government debt of that year.
2
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Chart 7. 2015 Forecasts for Public Debt Stock
Chart 8. 2015 Forecasts for Public Financing Needs
(Percent of GDP)
100
(Percent of GDP)
25
80
20
60
15
40
10
20
5
Chile
Russia
Peru
Indonesia
Turkey
Philippines
Romania
Colombia
China
South Africa
Thailand
Poland
Argentina
Mexico
Malaysia
India
Brazil
Hungary
Croatia
Ukraine
Peru
Chile
Indonesia
China
Russia
Turkey
Colombia
Philippines
Romania
Malaysia
Thailand
Mexico
Poland
Argentina
India
South Africa
Brazil
Ukraine
Croatia
Hungary
0
0
Source: IMF Fiscal Monitor, April 2015.
Turkey’s
relatively higher current account deficit and the recent uncertainties surrounding international
financial markets caused CDS premiums to rise across all emerging economies, including Turkey (Charts 9
and 10). The CBRT’s new monetary policy framework, which has been in effect since end-2010 to observe
both price stability and financial stability, has been effective in restraining macrofinancial risks as well as
improving the current account. Likewise, macroprudential measures adopted by the BRSA contributed
largely to these efforts. Along with the cautious fiscal stance, the implementation of the new monetary
policy framework and the adoption of macroprudential policies have strengthened Turkey’s resilience
against external uncertainties.
Chart 9. 2015 Forecasts for Current Account Balance
(Percent of GDP)
Chart 10. Selected CDS Rates
(5-year, Basis Points)
6
400
4
350
Brazil
Turkey
South Africa
China
Mexico
Poland
Malaysia
300
2
250
0
200
-2
150
-4
100
Source: WEO, April 2015.
In
50
0615
0115
0814
0314
1013
0513
1212
0712
0212
0911
0411
1110
0610
0
0110
Colombia
South Africa
Peru
Turkey
Brazil
Indonesia
Mexico
Poland
Argentina
Ukraine
India
Chile
Romania
Malaysia
Croatia
China
Thailand
Hungary
Russia
Philippines
-6
Source: Bloomberg.
conclusion, compared to its peers in other emerging economies, Turkey exhibits a favorable fiscal
performance and has a relatively larger room for maneuvering fiscal policies, which may discretionarily be
implemented to restore macroeconomic stability. Together with the robustness of the financial system, this
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Central Bank of the Republic of Turkey
has been one of the major drivers of Turkey’s improvement in relative riskiness and the decline in real rates
during and after the global crisis. It is crucial to maintain and strengthen these fiscal achievements in the
current environment of elevated downside risks on capital flows to emerging economies fueled by
declining global risk appetite amid heightened uncertainties over global financial markets. Any measure
that would ensure the sustainability of fiscal discipline and reduce the savings deficit will support
macroeconomic stability and contribute positively to social welfare by keeping long‐term interest rates at
low levels.
REFERENCES
IMF, 2010, Fiscal Monitor, May.
, 2015a, Fiscal Monitor, April.
, 2015b, WEO, April.
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