Turkey’s budget will likely come under more strain as the government devises a response to the country’s deadliest earthquakes in almost a century.
(Bloomberg) —
Turkey’s budget will likely come under more strain as the government devises a response to the country’s deadliest earthquakes in almost a century.
Coming off a year when the government had its smallest budget gap in more than a decade, Turkey’s first fiscal snapshot of 2023 showed the deficit remained in check, giving authorities headroom to marshal fiscal measures to cope with the devastation.
But costs are adding up as authorities also channel billions of liras from state institutions to support stocks after last week’s rout. A support package already announced by President Recep Tayyip Erdogan, which includes 10,000 liras in cash per household in the affected regions, will cost the equivalent of 0.8% of gross domestic product, according to Barclays Plc.
Public finances were on the mend prior to the Feb. 6 twin earthquakes in the country’s southeast that hit 10 provinces and destroyed thousands of buildings. According to Treasury and Finance Ministry data on Wednesday, the central government’s deficit narrowed sharply in January from the previous month and reached 32.2 billion liras ($1.71 billion).
“The strong fiscal performance in 2022 and a low debt-to-GDP ratio should provide fiscal room in the short term to respond to the disaster and support recovery, along with potential quasi-fiscal support in the form of subsidized loans and debt relief to those affected,” Morgan Stanley economists including Alina Slyusarchuk said in a report.
Erdogan, who’s seeking a third term in elections scheduled for May, has stressed that state resources will primarily go toward rebuilding efforts. His government has initially earmarked 100 billion liras in quake-relief spending, with the amount expected to increase.
Estimates of the fallout vary. Bloomberg Economics has found the earthquakes may shave about 1% off Turkey’s GDP and bring economic growth for this year down to 2.6% from 3%. Turkish business group Turkonfed has put the economic toll at as much as 10% of national income.
What Bloomberg Economics Says…
“Turkey’s twin earthquakes’ devastating humanitarian toll is still rising, and while the full impact on economic activity remains unclear, our early estimates show that it may be sizable.”
— Selva Bahar Baziki, economist. Click here to read more.
Alongside the government’s efforts, commercial lenders have allocated 50 billion liras as a “solidarity package” to assist survivors, the president said Tuesday evening.
The fiscal drag of the relief measures will come on top of Erdogan’s election pledges, including a sharp hike in the minimum wage and early retirement pledges to more than 2 million people.
In January, the budget’s current transfers, which include payments to state-run energy importer BOTAS as well as social aid, were among the primary drivers of spending for the government.
Some 16 billion liras went to BOTAS, with current transfers overall accounting for nearly half of all budget expenditure. An increase in tax revenue helped offset higher spending.
“It seems that the government will have to change or at least revise its economic model,” M. Murat Kubilay, a non-resident scholar at the Middle East Institute, said in a report this week. “More financial support from Qatar, Saudi Arabia, and Russia remains a possibility. A new IMF loan is not expected and any international relief will only cover the basic needs of people in the region affected by the quakes.”
(Updates with analyst comment in final paragraph)
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