Erdogan’s Budget Sets Out Goal of Economic Rebalancing for 2019
(Bloomberg) -- Turkish President Recep Tayyip Erdogan signed off on a proposed 2019 budget that promises to help the economy restore fiscal discipline and curb inflation after years of supercharged credit growth and a recent slump in the lira.
Expenditures and income are both expected to rise by about 25 percent from this year, keeping the annual deficit at just over 80 billion liras ($14.2 billion), the government said in a proposal drafted by the office of the president and sent to the parliament’s Planning and Budget Committee on Thursday. The shortfall would be just under 2 percent of Turkey’s $880 billion gross domestic output and barely bigger than this year’s when adjusted for inflation.
“Restoring price and financial stability in the near term” is the budget’s objective, the government said in the document. “Economic balancing and budget discipline” are also among its priorities, according to the proposal.
Read more: Turkey Draft Sees 80.6b Liras Budget Deficit in 2019
With the economy thrown off-kilter after years of easy money, policy makers need to deliver on pledges of greater budget discipline to placate investors alarmed by the currency slump that began in August fueled by U.S. sanctions over the detention of an American pastor. Monetary and fiscal tightening should be part of the mix to repair the economy after the currency’s slump, the International Monetary Fund warned earlier this month.
The budget proposal is a sign that Turkey is finally looking to rein in public expenditures and refrain from creating another lending boom driven by Treasury guarantees, which is necessary to restore at least some of the policy credibility lost during the past few months.
Still, spending cuts envisaged by the government and real interest rates offered by the Turkish central bank are nowhere near what investors were demanding at the height of the currency meltdown two months ago.
After nine straight days of gains, the lira retreated almost 1 percent against the dollar in Istanbul on Thursday, bringing the year’s losses to over 32 percent, according to data compiled by Bloomberg.
With consumer inflation seen at 17 percent a year from now in a central bank survey published on Thursday, the budget deficit projected for 2019 shows almost no expansion when adjusted for price gains. Under the latest official estimates, the government’s shortfall is set to reach 72.1 billion liras at the end of this year.
The government first signaled plans to keep the deficit flat in real terms in a medium-term program unveiled last month, setting out targets that investors found more realistic than ambitious.
One major departure from this year’s budget is the amount of special-purpose bonds that the government can issue, which was increased from 1 percent of expenditures to 3 percent, or around 28.5 billion liras.
Such securities can be used by the government to provide capital for state banks and other state agencies, according to the proposal. By definition, they can’t be resold in the secondary market.
The parliamentary subcommittee has scheduled the general budget presentation for Oct. 23, and ministries will answer questions from lawmakers in individual sessions starting a week later. The hearing will come to an end on Nov. 22, with a general vote on the bill likely in December.
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