Budget dynamics: Further deterioration or a modest recovery?
► Well, snap elect ons would have l m ted the mpact of the electoral bus ness cycle by shorten ng the t me span dur ng wh ch publ c spend ng would trad t onally soar before the elect ons, r ght? Even so, H1 2018 budget dynam cs have v s bly deter orated.
► Furthermore, the TRY 24 b ll on extra spend ng due to the d str but on of bonuses to pens oners ahead of elect ons s only half-booked n the current budget pr nt – because they aren’t yet pa d. We w ll see the mpact of the rema n ng half (TRY 12 b ll on) n August. ► Not only d d the budget def c t almost double up (TRY 25.6 b ll on) but also the pr mary def c t soared by a factor of two (TRY 23.2 b ll on). Already, the 2017 f gures weren’t good.
► The IMF def n t on of government pr mary balance sadmttedlyabt unnecessar ly restr ct ve. St ll, there has been a pr mary def c t for the last 24 months f we cons der the IMF def n t on. Now the M n stry of F nance-def ned pr mary balance s also n the red.
► Rely ng on tax revenues s mposs ble g ven that econom c act v ty s los ng momentum. Cons der June, the real ncrease n tax revenues was a mere 1.4 percent whereas the real ncrease n total expend tures was 15.9 percent. Non- nterest expend tures went up by 14.9 percent. ► The mportant th ng s real expend tures here. Already nflat on s runn ng h gh but budget expend tures are ncreas ng n real terms also desp te h gh nflat on and they are runn ng at a speed that exceeds that of revenues by 1.8 t mes. Even f everyth ng goes as planned, we see upward r sk for the head-on budget def c t and pr mary def c t th s year.
► Hence, any d scuss on as to whether t s poss ble to st mulate the economy one more t me before the local elect ons s empty rhetor c. It s always poss ble to spend and/or ncrease transfer payments, but they won’t amount to a genu ne st mulus, w ll be absorbed by nflat on.