Turkey set to miss budget target, plans tighter policy

Türkiye Materials 6 September 2012 14:21
Turkey set to miss budget target, plans tighter policy
Turkey set to miss budget target, plans tighter policy

Turkey is highly likely to miss its budget deficit target of 1.5 percent of national output this year as growth slows and tax revenues fall but is looking at corrective measures including spending controls, Finance Minister Mehmet Shimshek told Reuters.

Economic growth in the second quarter would probably be stronger than in the first but preliminary data suggested it would be softer in the third, Shimshek said in an interview in his office late on Wednesday.

"It looks very unlikely that we will attain our fiscal targets," Shimshek said.

Stellar economic growth over the last decade has been the bedrock of the success of Turkey's ruling Justice and Development Party (AK Party), which has overseen a near tripling of per capita income since coming to power in late 2002.

But with growth slowing, budgetary balances are deteriorating as the government spends more to shore up the economy while taking in less in tax revenues and disappointing privatisation receipts.

Turkey is due to release second quarter figures for gross domestic product on Monday. Growth in the first quarter was 3.2 percent year-on-year and Şimşek said the country was likely to miss its 4 percent growth target for 2012 as a whole.

"We are working on the corrective measures, but I can't comment on the timing. We are looking across the board, from spending controls to other measures," Simsek said, declining to give any details because government negotiations on the 2013 budget had only just begun.

The government has to submit the 2013 budget to parliament by October 17.

Şimşek said that growth this year had been driven by exports rather than domestic demand, having a negative impact on revenues because Turkey gives tax rebates to exporters as part of a policy to boost production.

"It's not (just) that the headline GDP growth is softer, it is also that the composition of growth is very unfavourable when it comes to tax revenues," he said.

He said Turkey would comfortably meet a gross debt to GDP target of 37 percent by the end of the year and that he saw a higher chance of being within a current account deficit target of $65 billion, equivalent to 8 percent of GDP, than of overshooting it. ($1 = 1.8215 Turkish liras)