Turkey Plans Spending Cuts

From Bloomberg this morning:

Turkey to Cut Spending, Lower Target for Budget Gap

By Steve Bryant

Aug. 1 (Bloomberg) -- Turkey cut planned government spending this year by 3.1 billion liras ($2.4 billion) as it seeks to meet budget targets agreed with the International Monetary Fund and open the way for interest rate cuts.

The government cut its spending target for the year to 148.9 billion liras, and also lifted its revenue target by 2.8 percent to 193.3 billion liras, the Finance Ministry in Ankara said in a report on its Web site today. The revisions mean the country targets a budget deficit of 1.3 percent of gross national product this year, compared with a 2.7 percent target in the original budget announced in October last year, the ministry said.

Turkey loosened budget discipline in the first half of the year as tax income rose more slowly than planned and the government spent on farms and infrastructure ahead of parliamentary elections on July 22. The higher spending may delay cuts to the central bank's benchmark interest rate, governor Durmus Yilmaz said on July 27.

The revisions are ``positive, but we need a detailed statement on how they'll achieve them,'' said Sertan Kargin, economist for TEB Investment in Istanbul. ``We've seen an explosion in pre-election spending on agriculture and municipalities and they'll have to rebalance the spending side.''

The Justice and Development Party won re-election after campaigning on its record of budgetary discipline and economic growth. The government reduced the budget deficit last year to 0.7 percent of economic output from more than 14 percent when it was first elected in 2002.

`Non-Priority Activities'

The spending reductions this year will come from ``determined implementation of cuts and savings on non-priority activities and projects,'' the ministry said in its statement.

Tax income for the year will be 157.9 billion liras, lower than the 158.2 billion originally targeted in the budget, the statement said. The revenue increase will come from sales of assets such as the phone company Turk Telekomunikasyon AS, it said.

Turkey's IMF accord demands a budget surplus, not including interest payments, of 6.5 percent of economic output every year. The IMF doesn't include one-off items such as asset sales income when it calculates Turkey's budget performance.

The central bank may lower interest rates in the last quarter of the year ``if we see that measures have been taken'' to trim the budget, Governor Yilmaz said in Ankara on July 27.

The bank raised its benchmark interest rate by 4.25 percentage points to 17.5 percent, the highest in Europe, in three moves in June and July last year.