Turkish spending plans not an 'election budget': finance minister

Reuters News
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Posted: Oct 11, 2013 7:15 AM

By Orhan Coskun

ANKARA (Reuters) - Turkey's government will not overspend next year in the run-up to a series of elections, Finance Minister Mehmet Simsek promised on Friday.

The International Monetary Fund last week called on Turkey to tighten its monetary and fiscal policies in order to reduce its external imbalances, which have been exacerbated by capital outflows from emerging markets.

Turkey is due to hold local and presidential elections next year and a parliamentary vote in 2015. Some economists fear the government, which has built its reputation on a decade of strong growth, may be tempted to pump prime the economy.

"We have not drafted an election budget for next year, just as we didn't in the past. We are not seeking an election economy," Simsek told a news conference.

Detailing the government's spending plans, he said the budget deficit would stand at around 19 billion lira ($9.6 billion), or 1.2 percent of GDP, by the end of this year.

Turkey has benefited from higher-than-expected privatization revenues in 2013, particularly from the sale of electricity distribution networks, which have kept a lid on the deficit.

In its medium-term program announced this week, the government forecast the deficit would widen to 33.2 billion lira next year before narrowing to 29.5 billion in 2015 and 23 billion in 2016.

"Overall markets will find the discipline of the government budget favorable and its stance towards the mid-term plan credible after these statements, as long as they are implemented," said Erkan Dernek, market strategist at Odeabank.

The budget balance, which fluctuates heavily month to month, showed a deficit of 4.7 billion lira in September, giving a deficit for the first nine months of 4.5 billion and a primary surplus, which excludes interest payments, of 39.3 billion.

Simsek said those figures showed the budget performance so far this year had been better than anticipated.

VULNERABLE

Prime Minister Tayyip Erdogan's government has overseen some of Europe's fastest growth and a near tripling of Turks' nominal wealth over his past decade in power, a record he is keen to maintain as the country goes to the polls.

But his determination to do so comes at a time when Turkey, whose explosive consumption-led growth has left it with major structural imbalances, is particularly vulnerable.

The government this week cut its economic growth forecasts for this year and next, lopping one percentage point off the 2014 figure to 4.0 percent after a revised 3.6 percent estimate for 2013.

A gaping current account deficit, mostly driven by huge energy imports, and high foreign debt have made Turkey one of the countries most exposed to a shift in global capital likely once the U.S. central bank starts to reduce its bond purchases.

Relatively weak foreign direct investment compared to emerging market peers leaves Turkey reliant on volatile portfolio flows and short-term debt to finance a current account gap that exceeds 7 percent of gross domestic product (GDP).

Simsek said again on Friday that the government was trying to make the economy more resistant to external risks, although he noted in an interview with Reuters last month that structural changes would take time.

The current account deficit narrowed to $1.995 billion in August, below the $2.1 billion forecast in a Reuters poll but still significantly higher than the previous year, according to central bank data released on Friday.

"The current account deficit is showing scant evidence of narrowing, remaining enlarged and still a key Achilles' heel for the Turkish economy," Timothy Ash, head of emerging markets research at Standard Bank, said in a note to clients.

(Additional reporting by Daren Butler and Dasha Afanasieva in Istanbul; Writing by Nick Tattersall; editing by Stephen Nisbet)