TURKEY - Macro View: Central Government Budget – November 2022 (Gedik Yatırım)

Fiscal performance improves in November due to corporate taxes
 

Central government budget posts a TL108bn surplus in November. In November, the central government budget posted a TL108.3bn surplus compared to the TL32.0bn surplus in the same month of last year. There was a TL132.7bn primary surplus vs. the TL47.3bn primary surplus of November 2021. The primary surplus figure drops to about TL120bn when adjusted for the IMF definition, i.e., when one-off items are excluded. For the January-November period, budget deficit stands at a mere TL20.4bn, while there was a primary surplus of TL272.2bn. Note that these compare favorably with last year's TL46.5bn budget deficit and TL125.4bn primary surplus figures.
 
Favorable results are attributable to strong corporate tax collection and constraint in non-interest expenditures. Tax collection was robust in November with a 110% YoY increase in nominal terms, which translates into about a 14% rise in real terms. This seems mainly owed to strong corporate tax collection, which increased to TL123bn from last November's TL47bn, implying a 42% YoY rise in real terms. Note that corporate tax collection reached almost TL500bn for the Jan-Nov period compared to TL175bn in the same period of last year. SCT collection on motor vehicles also seems to have increased significantly to TL20.4bn in November from TL6.5bn in Nov-21, implying more than a 70% YoY rise in real terms (adjusted by CPI inflation). In addition to strong tax collection, non-interest expenditures seem constrained with a 3% YoY decline in real terms, which also contributed to the favorable fiscal results in November. Budgetary transfers to BOTAS, the state natural gas distributor and payments for the FX-protected deposit scheme, which caused heavy burden in previous months were nil in November, while transfers to SEEs were a mere TL4.6bn. Total transfers to SEEs have reached TL193bn y-t-d, of which TL126bn was for BOTAS. Note also that the latest medium-term program (MTP), released on 4-Sep, projects the combined budget deficit of SEEs at TL430bn compared to the initially foreseen TL20bn.
 
12-month rolling budget deficit to GDP ratio may remain below 3% of GDP despite a hefty budget deficit in December. In sum, the November headline budget results seem to have put a halt to the deterioration in fiscal performance, which had been undergoing since July, with the slowdown in tax collection and the surge in non-interest expenditures. Recall that the government in the latest medium-term program (released on 4-Sep) revised its budget deficit projection for 2022significantly to TL461bn from TL278bn. As public institutions tend to utilize remaining appropriations in the last month of the year, we will most likely see a massive YoY rise in non-interest expenditures in December, which may result in a record-high budget deficit of about TL350-400bn. This would mean that full-year budget deficit may stand at close to TL400bn, which would point to about 2.7% of GDP, which would be well below the government's 3.5% target. That said, we we also believe that a budget deficit/GDP ratio heading towards 3.5-4.0% or above still remains as a considerable risk for the accompanying years, particularly due to the rising interest expenditures and potentially significant FX protected deposit scheme-related expenses.
Serkan Gönençler
Chief Economist
 
 Gedik Yatırım Menkul Değerler A.Ş.
 www.gedik.com

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                               Yasal Uyarı
 
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