Contrary to the optimistic expectations for the end of the year, the budget used an extraordinarily high level of appropriations in December and the annual deficit reached TRY 1.37 trillion. The deficit in December alone amounted to TRY 842.53 billion. Thus, the expectation that budget expenditures would be controlled at the end of the year did not materialize.
In the Medium Term Plan, the year-end budget deficit was estimated at 1.6 trillion TL. The deficit projected as 659.4 billion TL in the initial budget was kept unchanged in the supplementary budget.
In the last month of the year, due to earthquake expenditures, a budget expenditure of 639.4 billion TL was realized in the Capital Transfers item in a single month. The budget deficit, which was previously expected in Treasury cash realizations, was thus increased to 1.3 trillion TL. In 2023, the 2023 expenditure, which was increased to TRY 5.59 trillion with the supplementary budget, was also exceeded and reached TRY 6.59 trillion.
In December, compared to the same month of the previous year, general expenditures and non-interest expenditures increased by 271.2 percent and 278.3 percent, respectively. The capital transfers item, which includes earthquake expenditures, increased by 3,656 percent in December alone.
While general budget revenues increased by 117.4 percent, tax revenues rose by 108.3 percent. Among tax revenues, corporate tax, domestic VAT, BITT and SCT realized above the increase in general tax revenues, while VAT on imports and income tax remained below the average. The increase in income tax was only 96.4 percent.
Among expenditures, the capital transfer item, which includes emergency earthquake expenditures, reached TRY 858.1 billion. Another high rate of increase was in personnel expenditures, including social security premiums and other salary increases. The increase in this item reached 115.3 percent. The increase in current transfers, which cover the normal expenditures of the state, reached 110.7 percent.
High deviation compared to Treasury Cash realizations
According to Treasury cash realizations, which usually provide a close approximation of the budget deficit, the year-end budget deficit deviated significantly. By the end of 2023, the Treasury cash deficit stood at TRY 625 billion. By the end of 2023, the Center for Fiscal and Monetary Policy Research at Economic Policy Research Foundation of Turkey (TEPAV) had announced to the EKONOMİ daily that it could be close to this amount in the main scenario and exceed TRY 1 trillion in the pessimistic scenario. The main reason for the deviation is estimated to be the accrual of mainly earthquake expenditures in 2023, but not yet cash outflows. This situation will stabilize in the first months of 2024.
As of December 2023, the main factor pushing the budget deficit upwards was capital transfers, and within this, the “Capital Transfers to Other Institutions, Enterprises and Households Not Classified” item, which amounted to TRY 622.72 billion in December. This item was used especially for emergency expenditures after the earthquake. Again, within capital transfers, TRY 3 billion was spent on capital transfers for disasters throughout the year.
Coskun Cangoz, Director of the Center for Fiscal and Monetary Policy Research at TEPAV, pointed out the increase in appropriations in interest and personnel expenditures, while emphasizing the high amount of TRY 432.7 billion in current transfers. Cangöz said, “There is also an expenditure of TRY 639 billion made in December within the scope of earthquake expenditures. However, the 2023 expenditure realization figure in the Treasury cash balance is TRY 5.95 trillion TL, which is TRY 626 billion lower than the budget realization. In this case, we understand that a significant amount of expenditures were accrued but not spent in cash, either to avoid burning budget appropriations or to avoid postponing these expenditures to the 2024 budget. As a reflection of this, we may see large amount of cash outflows from the Treasury in the first months of 2024.”
Hakan Yılmaz, a lecturer at Atılım University, reminded that the mid-year budget deficit was estimated at around TRY 1.3 trillion excluding FX Protected Deposit expenditures and said, “The budget deficit is increasing due to the fact that the expenditure growth, which started and expanded with the impact of the earthquake and the election process, is higher than the revenue growth, and this increases the pressure on public finance. In the discussions on structural reform areas as well as revenue increases, it is seen as critical to review public expenditure programs and to start the second generation reform efforts that have been postponed for a long time.”