​Fiscal excesses, monetary uncertainties

TURKEY - In Brief 22 Jul 2018 by Murat Ucer

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We take a quick look at last week’s June budget data and preview the upcoming MPC meeting. Recall that we put our Weekly Update on holiday, and will issue a political update on Monday.June BudgetThe Central Government budget ran a TL25.6 billion overall, and TL23.2 billion primary deficit in June, which were about twice larger than last June's levels -- of TL13.7 billion and TL12.5 billion, respectively. The 12-month rolling overall deficit hence rose to over TL68 billion, or around 2% of GDP in Q2, up from 1.6% in Q1. The primary balance slipped to a deficit of almost TL5 billion in 12-month rolling terms, while by IMF definition, which excludes one off-revenues, the primary deficit rose further to a whopping TL33 billion (see charts).On the revenue side, tax revenues increased modestly by 1.7% in inflation-adjusted terms in June, y/y, which was primarily driven by weakness in Special Consumption Taxes. This, in turn, appears to have reflected the adverse impact of the newly introduced mechanism -- targeted at stabilizing gas prices -- and the drop in auto sales (see table). To the contrary, VAT revenues rose by an inflation-adjusted 9%, which was solid, but adjusted for the volatility in the data, VAT revenue also seemed to be decelerating in recent months, consistent with the weakening in domestic demand. Tax revenues were boosted by import taxes, essentially thanks to lira weakness, i.e. surge in the lira value of imports.On the expenditure side, primary expenditures rose by an inflation-adjusted 15%, y/y, which was driven almost entirely by current transfers, i.e. bonus payments to pensioners, as most other spending components – notably goods and service procureme...