Turkey: Weak underlying performance in November

In November, the central administration primary balance was TRY 14.8 billion vs. TRY 13.6 billion in the same month of 2017 - an improvement in nominal terms, though the performance isn't satisfactory given double-digit real contraction at 10.7% YoY.

The monthly outcome shows strong revenues from non-tax items while primary spending maintained high growth with 30.2% YoY growth (7.0% in real terms). Budget balance, on the other hand, deteriorated in nominal terms to TRY 7.6 billion from TRY 8.5 billion, given the spike in interest expenditures by 40% YoY (translating into more than 15% real increase) on the back of uptrend in the yields.

Surging inflation this year has created a significant boosting effect on major budget items, with close to 20% or higher nominal increases.

The monthly breakdown shows the pace of real increase in tax revenues has lost momentum with a -4.3% real contraction in November vs. +1.5% on a year to date basis, given the reflection of softening growth outlook in the second half of this year.

The large increases (more than 12% in current transfers, above 13% in social security premiums, 5% in personnel expenditures, etc.) are a concern for the fiscal outlook in the period ahead and the sharp recovery in non-tax revenues in recent months, maintaining the trend in November likely due to one-off impact from tax amnesty and asset restructuring.