Turkey’s Budget Deficit Rises to TL 223 Billion in October as Spending Pressures Mount

Turkey’s central government budget posted a TL 223.2 billion deficit in October, widening by nearly 20% year-on-year as strong tax collection failed to offset rapid growth in non-interest expenditures and elevated interest costs. While the primary balance showed improvement on a year-to-date basis, overall deficit dynamics remain under pressure. Economists say the government’s 2025 medium-term target—keeping the budget deficit at 3.6% of GDP—remains attainable but will require strict spending discipline.

Headline Deficit Widens Despite Strong Revenue Performance

Turkey’s central government budget recorded a TL 223.2 billion deficit in October 2025, compared with TL 186.3 billion in the same month last year. The annual deterioration of 19.8% reflects higher spending—particularly current transfers and personnel costs—despite a sharp acceleration in tax revenues.

The primary deficit reached TL 65.8 billion in October, wider than the TL 50.1 billion recorded last year.

On a 12-month rolling basis:

• The overall deficit increased slightly from TL 2.25 trillion to TL 2.29 trillion,

• The primary deficit widened to TL 245 billion.

Tax Revenues Surge, Led by Income Tax and VAT

Budget revenues climbed 49.1% year-on-year to TL 1.147 trillion in October, supported by strong domestic demand and base effects.

Tax revenues were the key driver, rising 51.6% on an annual basis.

Biggest Contributors

• Income tax: +90% YoY — boosted heavily by rising withholding on deposits and investment funds.

• Domestic VAT: +52.3% YoY — signaling continued strength in consumption.

• Imported VAT: +33.1% YoY

• Special Consumption Tax (ÖTV): +33.9% YoY

Non-tax revenues rose 28.3% during the month, with sizeable contributions from fees, fines, and profit transfers.

Expenditures Outpace Inflation

Total expenditures increased 43.4% in October—outpacing the 32.9% annual inflation rate.

Primary Spending Climbs

Non-interest expenditures surged 48%, driven by:

• Current transfers: +48.6% YoY

• Personnel costs: +37.8% YoY

• Capital expenditures: +27.9% YoY

Borrowing-related lending costs declined by 3%, providing a modest offset.

Interest Costs Still a Heavy Burden

Although the pace of increase in interest payments slowed to 15.6% YoY in October, the January–October picture remains challenging:

• 2024 Jan–Oct interest expenditures: TL 1.05 trillion

• 2025 Jan–Oct interest expenditures: TL 1.82 trillion

• Annual increase: 74%

Rising interest costs continue to erode the fiscal benefits generated by strong tax collection.

Primary Balance Shows Notable Improvement in 2025

Despite October’s monthly deterioration, the January–October period offers a more constructive picture:

• In 2024, the primary balance showed a TL 211 billion deficit.

• In 2025, the same period produced a TL 379 billion primary surplus.

This improvement is largely driven by:

• Robust revenue growth (tax revenues +51% YoY)

• Controlled increases in primary spending (+38% nominal)

However, the improvement in the primary balance has not been sufficient to offset the surge in interest expenditures, resulting in a higher headline deficit year-to-date (TL 1.44 trillion vs. TL 1.26 trillion last year).

Medium-Term Outlook: OVP Target Still Within Reach

The government’s 2025 Medium-Term Program (OVP) revised the year-end budget deficit forecast from 3.1% to 3.6% of GDP.

Economists from major institutions such as İş Bankası, Vakıf Yatırım, and Gedik Yatırım agree that:

• The 3.6% ratio appears realistic based on the first ten months of fiscal performance.

• The key risk for 2025 and beyond is non-interest expenditure growth, particularly current transfers and personnel costs.

• Additional tax adjustments cannot be ruled out for 2026, given the discrepancy between expected tax revenue growth (28%) and the GDP deflator (19.7%).

Analysts also expect the divergence between accrual-based and cash-based budget data—driven partly by delayed deployment of earthquake-related spending—to persist for some time.

What to Watch Going Forward

• Trajectory of interest costs: largest drag on fiscal performance

• Strength of domestic demand: affects VAT, ÖTV, and income tax revenues

• Public spending discipline: essential for meeting deficit and inflation goals

• EV, energy, and import tax adjustments: potential revenue sources

• Implementation of public savings program: key to containing non-interest spending

Despite fiscal headwinds, analysts highlight that Turkey has begun to re-establish a more disciplined primary balance, though maintaining this trend will require tighter control of expenditure growth.

Turkish brokerage reports

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