Turkey Discussed Central Bank Accounting Tweak to Bolster Budget
Turkish central bank officials discussed an accounting tweak that could boost a dividend payment to the government
(Bloomberg) --
Turkish central bank officials discussed an accounting tweak that could boost a dividend payment to the government and help cover the budget deficit, according to a person familiar with the matter.
The change would allow the central bank to book as income unrealized gains and losses in its so-called revaluation account -- accrued due to changes in the market value of its foreign-currency and gold holdings, the person said, asking not to be named because the talks weren’t public. The central bank distributes a share of its profits to the Treasury, its largest shareholder, every year.
It’s unclear how advanced the talks are, or whether they would result in a policy change. The Turkish central bank reported 61.4 billion liras ($10.5 billion) in its revaluation account as of Oct. 21. The central bank declined to comment.
The accounting change would require legislative approval. The current law stipulates that gains and losses accrued due to changes in the value of the Turkish lira and the price of gold “shall not be included in the profit of the valuation period and not be recognized as income.”
The lira and the benchmark stock index trimmed their gains after the news. The currency was trading 0.5% stronger at 5.8310 per dollar as of 5:48 p.m. in Istanbul.
The discussion came ahead of a heavy debt repayment schedule next year that threatens to strain government finances. In the first quarter alone, the Treasury plans to redeem about 75 billion liras of local-currency debt, a record figure for the period in data going back to 2005.
So far this year, the central bank has transferred around 80 billion liras to the Treasury through a regular dividend payment and a one-off cash transfer.
Deliberations on how to boost next year’s dividends highlight the delicate spot Turkey’s central bank occupies in its dealings with the government, which holds considerable sway over the monetary policy authority.
President Recep Tayyip Erdogan sacked the bank’s previous governor for not cutting interest rates fast enough, appointing Murat Uysal, who has reduced the bank’s benchmark rate by a total of 750 basis points in two meetings.
Turkey’s fiscal stress follows an economic downturn last year that hit tax revenue, and a spending spree after back-to-back elections. The budget gap stood at 85.8 billion liras through September this year, a 51% increase compared to the same period in 2018.
If Turkish officials move ahead with plan, it would be inflationary, said Haluk Burumcekci, the founder of Istanbul-based independent research firm Burumcekci Research and Consulting. Consumer price growth was running at an annual 9.3% as of September, the lowest level in more than two years.
To contact the reporter on this story: Cagan Koc in Istanbul at ckoc2@bloomberg.net
To contact the editors responsible for this story: Onur Ant at oant@bloomberg.net, ;Lin Noueihed at lnoueihed@bloomberg.net, ;Riad Hamade at rhamade@bloomberg.net, ;Simon Kennedy at skennedy4@bloomberg.net, Constantine Courcoulas, Paul Abelsky
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