November Budget:''Help Wanted''

Turkish Economy: November Budget

Help wanted

Turkey recorded a budget surplus of TRY 8,5bn (~USD 2,2bn at current market rates) in the month of November. 12 month rolling deficit has widened by TRY 1,5bn to TRY 53,6bn due to higher revenues collected last year. Government aims to run a budget deficit of 2% to GDP. Currently the run rate stands at 1,8% (Figure 1).

Key Take-aways:

  • Budget metrics stabilizing around their intended level.
  • Disciplined approach in expenditures prevails.
  • Current transfers – accounting about 45% of total expenditures – have declined by 9% YoY in real terms.
    • At the beginning of the year current transfers were rising by 21% on average each month.
  • Run rate of social security transfers slowed down to 14,3% YoY on the back of improving unemployment rate.
    • The run rate has peaked in January with 29,2%

Employment & Expenditures

Employment is a key ingredient for analyzing Turkish economy (Figure 2):

  • Growth is a direct function of employment,
  • Tax revenues are a function of employment,
  • Asset quality of banking sector is related to employment.

Turkish authorities have responded strongly to rising unemployment at the beginning of the year. Unemployment has peaked at 13,0% in January which corresponds with the peak of social security transfers.

Fiscal stimulus was mainly targeted at combatting unemployment. Unemployment rate was climbing sharply in 4Q2017 reaching 12% SA in the month of December. On the back of social security related payment deferrals and targeted expenditures Turkey created roughly 1,2 million jobs in 2017 bringing down the unemployment rate to 10,7% SA as of September (Figure 3).

As unemployment rate improves the need for social security expenditures diminishes. The government plans a new employment initiative. That should not come at the expense of budget discipline.

Going forward as employment outlook improves further public finances should behave according to the path foreseen by authorities.​