Turkey seals budget hole with central bank cash

The Turkish government plugged its deteriorating finances in July with an outsize cash infusion from the central bank.

The monetary authority transferred around 22 billion liras ($3.94 billion) to the Treasury last month, the biggest deposit since an annual dividend payment in January, according to data on its website. Without the disbursement, the government would have posted a budget deficit of about 12 billion liras, instead of a 9.9 billion lira surplus reported on Thursday.

The central bank outlay comes amid an economic slowdown that has dented tax revenue, prompting the government to seek other sources of income to finance its widening deficit. Last month, the government passed a law allowing it to tap around 40 billion liras of central bank cash held in its so-called lira reserve fund, a pool of money set aside by the policymaker for use in extraordinary circumstances.

Widening gap

Turkey’s budget deficit is set to widen to 3.7 per cent of output by the end of the year, the biggest shortfall since at least 2012, according to the median estimate in a survey. While tax income rose an annual 7.3 per cent in July, when adjusted for consumer inflation running at 16.7 per cent, revenue slumped for an eleventh straight month, the longest streak in 10 years.

Central bank cash will probably continue to prop up government finances in August, according to the latest data. The injection should help bring the 12-month rolling deficit toward the government’s year-end target of 1.8 per cent of output this month, according to Erkin Isik, an economist at QNB Finansbank. Still, the gap could widen to 2.5 per cent-3 per cent of gross domestic product by the end of the year, he said.

Central bank cash is accounted for in monthly government budget data under “Treasury portfolio and subsidiary income.” The item jumped to 22.3 billion liras in July from around 750,000 liras a month ago.