Domestic borrowing triples


The June Treasury cash balance data, which is considered the preliminary indicator of the central government budget, was released. The results contain important points that should be taken into account in the upcoming period.

►The Treasury cash balance posted a TRY 92.85bn deficit in June. This is a historic high for the Treasury.

►There are critical questions for economic balances if the jump in the Treasury’s cash deficit continues in the coming months. Will we see a limited development in July? Or will we face a critical choice in terms of the budget and fiscal policy? We should carefully monitor this in the upcoming months.

►Despite this, the 7-month total cash deficit is lower than the same period last year. The Treasury cash deficit dropped by 65.17%, or TRY 69.33bn, from TRY 106.4bn in the first seven months of this year, compared to the same period last year.

►The decrease in the cash deficit stemmed from the surge in the collection of the corporation tax with the impact of high inflation and the increasing share of import taxes as a result of the foreign exchange (FX) rate and import hikes. The resources transferred from the Central Bank’s profit to the Treasury was another factor. We owe this to the sharp FX rate hike in 2021 and the ‘balance sheet’ games in the Central Bank’s accounts on the last day of 2021.

►Critical developments on the finance side accompany these developments on the revenue and expense side of the Treasury.

►The decline in external borrowing is the first remarkable development. The Treasury has almost been unable to externally borrow. Net external borrowing fell from TRY 20.72bn to TRY 5.97bn in the first seven months of this year, compared to the same period last year. The actual decrease is sharper considering the FX rate hike.

►Contrary to external borrowing, domestic borrowing jumped. 7-month net domestic borrowing soared 229% from TRY 51.17bn to TRY 168.37bn in 2022, year-over-year. Domestic borrowing tripled and increased more than threefold.

►Another crucial development on the finance side is that Treasury’s domestic borrowing significantly exceeded its cash deficit. The Treasury’s net borrowing amounted to TRY 174.34bn versus a cash deficit of TRY 37bn in seven months. TRY 140.78bn was stocked in Treasury’s bank account in seven months. The hike in its bank account reaches TRY 201bn considering the FX difference of TRY 27.98bn.

►The Treasury borrowed much more than its cash deficit. Only time will tell us if it is because of the preparation for a possible cash crunch, the expectation of more interest rate hikes, or the preliminary preparation for election expenses.

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