Windfall From Turkey's Central Bank to Boost Cash Buffers

(Bloomberg) -- The Turkish central bank’s bigger-than-expected profit in 2018 will be used to boost the government’s cash buffers and improve the flow of liquidity in the economy -- a move that could help the ruling AK Party as municipal elections approach.

The amount to be transferred to the Treasury is estimated at 37 billion liras ($6.7 billion), nearly double the government’s forecast for the year, Treasury and Finance Minister Berat Albayrak told a meeting of the MUSIAD business association on Wednesday.

The Treasury typically collects its share of central bank profits -- in the form of transfers and taxes -- in April. But the regulator plans to approve an earlier payment on Jan. 18, giving the government more money to spend before March 31 balloting seen as a referendum on President Recep Tayyip Erdogan’s rule with newly expanded powers.

The government will use the proceeds to improve “liquidity flow” to markets through investments, tax rebates and other payments to businesses, Albayrak said.

The Treasury’s pockets will be deepened even as policy makers have committed to rein in public spending. Albayrak has set a primary budget surplus target of about 0.8 percent of gross domestic product this year, up from an estimated 0.1 percent in 2018. But the fiscal tightening is amplifying a sharp economic slowdown that began last year after the currency lost more than a quarter of its value against the dollar in August.

The lira was trading 0.8 percent lower at 5.5280 per dollar at 4:02 p.m. in Istanbul. It has lost around 4.3 percent against the U.S. currency so far this year, the worst performance among 24 emerging-market currencies tracked by Bloomberg.

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