As Turkey grapples with deficit, Erdogan pins his hopes on Gulf funds during visit(Al Monitor, July 16 2023)

A huge budget deficit is among the main issues that Turkish President Recep Tayyip Erdogan and his party face after their election victory in May, but not even an extra budget is likely to remedy the government’s financial woes, aggravated by its election-centered policies.

With a budget deficit on course to reach 10% of gross domestic product by year-end, this week the parliament passed a supplementary budget, allowing for additional spending of 1.1 trillion Turkish liras ($42 billion). Though that sum falls short of the needs, the government can ill afford to ask for more because of a legal obligation to equally increase revenues. Instead, the ruling party passed another bill that would allow Erdogan to allocate funds to public entities and expand his borrowing limits in a move that the opposition say is unconstitutional.

Budget deficits are a major factor underlying Turkey’s unruly inflation, which stands at 38.2% after prices rose nearly 4% on a monthly basis in June. The government may be speaking of tackling inflation, but with local elections looming in March 2024, it has been reluctant to go for a full-fledged employment of anti-inflation measures to cool the economy, curb public spending, slow income increases and raise borrowing costs. Signs are growing that such unpopular steps would be considered only after the polls.

As prices continue to rise, Ankara has sought to placate the electorate with pay hikes, vowing to “not let inflation crush the people.” This, however, is a recipe for a vicious cycle that only deepens economic fragilities.

The original 2023 budget envisioned spending 4.5 trillion liras ($172 billion) and a deficit of 661 billion liras ($25.3 billion). But the government’s election-focused spending resulted in a budget meltdown, exacerbated by the two giant earthquakes that devastated vast southern regions in February. The budget deficit exceeded 263 billion liras ($10 billion) in the first five months of the year, amounting to 40% of the gap that Ankara had projected for the whole year, according to official figures. The disaster, which claimed more than 50,000 lives and destroyed about 650,000 buildings, made the need for a supplementary budget inevitable, especially given the spending required for housing needs. According to the additional budget bill, 44% of the additional funds will go to earthquake-related programs.

https://www.al-monitor.com/originals/2023/07/turkey-grapples-deficit-erdogan-pins-his-hopes-gulf-funds-during-visit