Turkey Resumes Push to Boost Budget With Central Bank’s Cash
Turkey Resumes Push to Boost Budget With Central Bank’s Cash
(Bloomberg) -- Turkey’s government is planning to use central bank cash to help finance its widening budget deficit, just weeks after policy makers refrained from proposing a similar measure for fear it could roil financial markets.
A bill it has already drafted would let the central bank divert more of its profits to the Treasury, an official with direct knowledge of the matter said, asking not to be identified because of the sensitivity of the matter. Parliament is expected to take up the new legislation as early as Friday. It will also include an increase in the income tax for individuals and a higher real estate levy for houses worth more than 10 million liras ($1.7 million).
The measures reveal a growing worry on the part of the government over its widening budget deficit as the economy’s downturn makes it harder to collect enough taxes. Meanwhile, spending increases continue unabated, partly due to back-to-back elections during the past year. Just over a month ago the ruling party held back from proposing a similar law after investor concerns over Turkey’s fiscal standing.
The lira fell to a session low of 5.7912 per dollar on the news and was trading little changed at 3:20 p.m. in Istanbul.
Bigger Transfers
The changes would require the central bank to transfer more to the government by reducing the amount the monetary authority must set aside as so-called lira reserve funds, which are separate from its foreign-exchange holdings.
Existing laws allow the central bank to keep around 30% of its annual profit as lira reserves, a ceiling that’s likely to be lowered to about a third its current level, according to a copy of the draft seen by Bloomberg News.
The cash won’t finance additional spending but will instead be used to narrow the central government budget deficit, the official said.
To become law, the bill needs a simple majority in parliament, where the ruling party and its nationalist allies account for nearly 60% of the seats.
The news that Turkey is planning to tap central bank reserves to boost the treasury was first reported by BloombergHT television.
To contact the reporters on this story: Onur Ant in Istanbul at oant@bloomberg.net;Cagan Koc in Istanbul at ckoc2@bloomberg.net
To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net, Paul Abelsky, Mark Williams
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