Crisis deals blow to Turkey’s budget, TL 50 billion deficit likely in 2010

Soon after announcing a medium-term economic program last month, Finance Ministry officials began to draw up the budget for 2010, which will be on Parliament's agenda on Nov. 17.

The Anatolia news agency reported yesterday, quoting sources at the Finance Ministry, that the budget will be TL 286.8 billion next year, larger than the TL 266.8 billion revised budget for 2009. Revenues are estimated to be TL 236.8 billion in 2010, of which the state plans to collect TL 193.3 billion directly from taxes. All in all, the state budget will end up with a deficit of TL 50 billion, which will in turn increase the borrowing requirements of the Treasury.

The Finance Ministry's General Directorate for Budget and Finance is using as a basis the policies and figures proposed in the medium-term financial plan in its preparation of the new budget. The directorate, which is tasked with drafting the budget, also takes requests from all ministries and other state institutions into consideration when trying to balance revenues with expenditures.

In addition to these efforts, the State Planning Organization (DPT) is also working on investment allocations for the coming year. Its findings will be a core parameter of the calculations of the budget numbers.

Finance Ministry bureaucrats estimate that non-interest expenditures will reach TL 230 billion in 2010, in addition to another TL 56.75 billion for interest payments.

The government will allocate a total of TL 60.3 billion for payments to staff. Current transfers, such as money that goes to farmers in the form of agricultural subsidies or special incentives for certain sectors, will be around TL 102.2 billion. The state's premium payments to social security institutions for workers and civil servants is estimated to reach as much as TL 11 billion. Ministry officials are also planning to dedicate TL 25.9 billion to public procurement. Capital transfers are projected to be TL 3.2 billion, and the state will allocate TL 6.9 billion to extend as loans. Another TL 1.4 billion will be saved as reserve funding for the extension of loans in the event of greater demand.

Amidst these projections, the government will try to cut numerous expenditure items and focus more on savings. For example, after lengthy talks and tough negotiations, the government refused to bow to the demands of civil servants for wage increases for 2010 and only agreed to boost wages by 2.5 percent every six months, which adds up to 5.06 percent cumulatively. Meanwhile, the state will exclude health expenditures from the main budget for the first time, starting from Jan. 1, 2010, except for parliamentary deputies and their dependents, soldiers, indigents holding green cards and prisoners. Expenditures for treatment, cures and drug expenses will be transferred to the Social Security Institution (SGK), and the state will allocate a certain amount of funding every year for the SGK.

The Finance Ministry wanted to transfer the accounts of green card holders to the SGK, too. However, since the Health Ministry is still working to determine the exact details of existing green card holders, which is subject to controversy as many hold these cards without actually needing them, and since the SGK is still struggling to complete its integration into the system, the Finance Ministry had to step back from its plan.

Although the government decided to exclude the budget allocations for health expenditures except for the four aforementioned groups, it will still be transferring a good sum of money to the SGK to cover its deficits. Finance Ministry bureaucrats are planning to allocate nearly TL 58 billion for this in the coming year, and this number will likely increase to between TL 61 billion and TL 63 billion in 2011.

Meanwhile, a recent report has shown that the ongoing global crisis dealt a harsh blow to the budget this year. The Finance Ministry's latest Expectations Report stated that budget expenditures this year will be TL 7.8 billion higher than the goal, whereas revenues will be TL 44.8 billion less than projected.

Parliament approved a 2009 budget of TL 259.16 billion in November 2008 but later had to revise it to TL 266.75 billion due to unexpected expenditures during the year. Equally worse, it was planning to bring in TL 248.8 billion in revenues during 2009 but later found that these revenues would not be larger than TL 203.92 billion. In other words, the government initially estimated a budget deficit of TL 10.4 billion but later was obliged to raise it to TL 62.8 billion, a large deviation.

The main reason for this was an unexpected fall in tax revenue. The initial goal was to take in TL 202.1 billion from taxes, but largely due to tax cuts to boost sales in certain sectors and the fall in overall demand due to the ongoing economic crisis, revenues fell to a much humbler TL 163.6 billion, a TL 38.5 billion contraction in anticipated revenues.

In addition, the government had planned to end this year with a primary surplus of TL 47.1 billion, but it has now revised this target to a primary deficit of TL 7.3 billion.