Turkey Seals Biggest Budget ‘Black Hole’ in U-Turn on Hospitals

(Bloomberg) -- The Turkish government has decided to end a costly public-private partnership system used to build massive city hospitals, decried by the opposition as the “biggest black hole” for the budget in the country’s modern history.

Speaking in Ankara on Thursday, Health Minister Fahrettin Koca said new city hospitals will be constructed through regular government tenders, using the general budget when authorities have the means to do so. “Do I have to implement the PPP model every time?” he asked.

Besides an opposition backlash, the strain of fiscal deficits is behind the U-turn. Turkey’s 2019 budget has allocated 5.2 billion liras ($900 million) for the hospitals, a figure that will almost double next year, with four new hospitals scheduled to start operations.

But with the economy sputtering after recession, it’s the burden in the years ahead that’s raised the alarm.

According to projections by the main opposition Republican People’s Party, or CHP, the budgetary burden of 30 city hospitals -- both those already operational and planned -- will surpass $142 billion over the next 25 years. The government will have to pay $5.7 billion every year to private contractors, CHP said in a statement.

President Recep Tayyip Erdogan defended the hospital projects. “Some say city hospitals make losses. If these hospitals make losses by serving people, then let them lose money,” Erdogan said in a speech on Saturday.

Budget Sinkhole

Turkey’s central government budget ran a deficit of 100.7 billion liras in the first 10 months of the year, according to data published Friday. That’s up 62% from the same period in 2018. The shortfall is seen at 2.9% of gross domestic product this year and next, according to government projections.

Read more: Turkey Budget Sinks Into Deficit Again Without Central Bank Cash

Currently 10 city hospitals are in operation, with a total bed capacity of 13,417, according to Health Ministry data. Nine new city hospitals will be launched under the PPP model until 2021, while 10 others will be built through government tender.

The abandonment of the PPP model is a welcome development, Ugur Emek, an economist at Baskent University in Ankara, said by phone. Otherwise 60% of the Health Ministry’s budget would’ve been allocated to fund the costs of city hospitals, he said.

“That effectively would have meant freezing up the health budget,” Emek said.

©2019 Bloomberg L.P.

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