Budget deficit in Q4 to be ninefold higher than in Q1-Q3


The Erdogan administration submitted the 2023 central government budget (CGB) proposal to Parliament. Given the proposal includes forecasts for 2022 CGB, we can now evaluate the fiscal policy for the last quarter (Q4) of 2022:

►Budget expenditures, budget revenues, and budget deficit were supposed to total TRY 2.83tr, TRY 2.55tr and TRY 278.4bn, respectively, in 2022, according to the additional CGB introduced in the middle of 2022. The budget was also supposed to post a TRY 51.4bn primary surplus. The CGB, prepared three months after the additional budget was introduced, estimates budget expenditures to reach TRY 3.13tr, and budget deficit to reach TRY 461.2bn for 2022. The primary surplus is expected to transform into a TRY 131.4bn deficit.

► So, in three months, there emerged an unfavorable variance of 66%, or TRY 302bn, in revenue accounts and TRY 182.8bn in the budget deficit.

► Budget expenditures totaled TRY 2.02tr in Q1- Q3. This means that TRY 1.11tr more will be spent from the budget in Q4 2022. So, more than half of the expenditure, around 55%, that was made in Q1- Q3, will be realized in Q4. Monthly average expenditures in Q4 will be 1.65-fold higher than the average spending in Q1- Q3.

►The government’s consumption expenditures in Q4, will correspond to 73% of the total consumption expenditures in Q1-Q3. The monthly average consumption expenditures in Q4 will be 2.2-fold higher than the average in Q1- Q3.

► Monthly average transfer expenditures in Q4 will be 1.43-fold higher than the average in Q1- Q3. The highest surge among sub-items was seen in the ‘other current transfers’ item. The monthly average expenditure of this item in Q4 will be 2.17-fold higher than the average in Q1- Q3. The interest rate (IR) payments for the FX-protected TRY deposit accounts (KKM) made by the Treasury, various transfers to households, and incentive payments are included in this item.

► The acceleration in investment expenditures is even higher. Investment expenditures will surge by 17% in Q4, as compared to Q1- Q3. The monthly average in Q4 will be 3.52-fold higher than in Q1- Q3.

►IR expenses have also accelerated. IR expenses in Q4 will correspond to 59% of IR expenses in Q1- Q3. The monthly average in Q4 will be 1.78-fold higher than in Q1- Q3.

► The CGB posted a TRY 45.5bn deficit in Q1- Q3. The budget deficit will be at TRY 415.69bn in Q4. The budget deficit in Q4 will be 9.13-fold higher than in Q1- Q3. The average monthly budget deficit will jump 2714-fold in Q4, compared to the average in Q1- Q3.

►These results based on the 2023 CGB proposal show that the Erdogan administration has initiated unprecedented expenditures for the pre-election economy.

Such high expenditures and budget deficits make the economy vulnerable to dramatic levels of inflation, a high current account deficit, a negative shift in the balance of payments, and a potential explosion of foreign exchange rates.

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