Turkey introduces trillion lira extra budget as deficit breaks record

Turkey’s parliament introduced an additional appropriation of Turkish lira (TRY) 1.1 trillion ($43bn) into the 2023 budget with an omnibus bill that took effect on July 15. The revenue forecast was hiked by the same amount as the country’s fiscal pressures mounted amid its economic crisis.

With the legislation, the government hiked salaries paid to 5mn public servants and payments to 16mn pensioners while sharp tax hikes were also delivered.

The bill also tripled the government’s net borrowing limit for 2023 to TRY 2 trillion from the previously set TRY 661bn.

For 2022, Turkey reported that its budget deficit declined by 31% y/y to TRY139bn, or 1% of GDP, from TRY202bn in 2021, or 3% of GDP.

For 1H23, Turkey reported a deficit of TRY 483bn versus a surplus of TRY 94bn a year ago. The TRY 220bn deficit reported for the month of June alone registered as an all-time high.

Turkey last week tripled petrol taxes as one of numerous moves made in an attempt at refilling state coffers. The Erdogan administration delivered some huge giveaways, including a month of free natural gas, in the run-up to May’s parliamentary and presidential elections. It now needs to recoup some of those funds, while it also faces the prospect of funding the reconstruction effort, costing up to $100bn, required following the devastating February earthquakes that took the lives of at least 50,000 people. 

Taxes on regular petrol were upped by around 200% to Turkish lira 7.53, with levies on diesel and a series of other petroleum products raised as well. The hike pushed up petrol prices at the pump by around 20%. 

Turkey also last week hiked the tax on consumer loans by 5pp to 15%; pushed up VAT rates on goods and services; and increased official document fees by 50%.

Turks were already under pressure from the latest severe bout of lira depreciation. It is down around 30% against the dollar in the year to date.

Official headline inflation declined to 38.2% in June from its October 2022 peak of 85.5%, but economists are anxious that the even weaker lira and the new taxes will send it back up.