ANALYSIS: Budget Deficit Still Far from Serving as a Fiscal Discipline Anchor

According to the central government budget data for April released by the Ministry of Treasury and Finance, budget revenues amounted to TRY 957.4 billion, while expenditures reached TRY 1,132.1 billion. In the same period, non-interest budget expenditures stood at TRY 871.5 billion. These figures translate into a budget deficit of TRY 174.7 billion, while the primary balance (excluding interest payments) posted a surplus of TRY 86 billion.

We had previously shared our expectation of a limited recovery in the budget. A key driver behind the positive divergence in the primary balance has been the sharp increase in interest expenditures, which climbed to TRY 260 billion (up from a Q1 2025 average of TRY 160 billion). Personnel expenses and current transfers remained relatively flat compared to the previous month.

In April, TRY 29.7 billion was transferred to Elektrik Üretim A.Ş. and TRY 10 billion to BOTAŞ as current transfers. Other economic and financial-purpose transfers amounted to approximately TRY 23.7 billion. Seasonal items such as holiday bonuses were replaced in April by energy payments and economic-purpose transfers.

These developments, while reducing some expenditure items, still prevent the budget from reaching the desired level of tightness. Although monetary policy remains sufficiently tight, disinflation has not reached the targeted pace. This implies additional responsibilities for fiscal policy. Particularly, inflationary pressure stemming from public spending adds to the burden on monetary policy.

If budget revenues are not increased — which implies additional taxation, assuming spending is not meaningfully curtailed — the deficit may spiral out of control. Changes to the pension system, the lingering impact of the earthquake disaster, and persistently high inflation are the main obstacles preventing a meaningful budget recovery.

We emphasize once again that fiscal policy has yet to reach the necessary level of restraint, and the budget deficit may contribute further to inflationary pressure. The latest interest rate hike suggests that actual inflation has exceeded forecasts. In the current context, it is clear that monetary policy alone will not be sufficient to ensure price stability — fiscal policy must bear a greater share of the burden.

Global developments and the rising debt load are also triggering new risks, both in terms of borrowing costs and the sustainability of public debt. The importance of the fiscal discipline anchor will only grow.

Budget expenditures rose by 46.3% compared to the same period last year. The highest percentage increases were in goods and services procurement (44.8%) and interest expenditures (128.6%). The largest nominal increases came from current transfers (TRY 100 billion) and interest payments (TRY 146 billion).

On the revenue side, the average annual increase was 60.7%. The most prominent increases were in the revenues of regulatory and supervisory institutions (334.1%) and self-generated revenues of special budget administrations (124.1%). The sub-items contributing the most to budget revenues were income tax and special consumption tax (TRY 125 billion and TRY 44 billion, respectively).

The core, chronic issue with the budget deficit is that while expenditures are rising and staying high due to inflation, revenues are not increasing at the same pace. In particular, the budget deficit-to-GDP ratio remains far from functioning as a true fiscal discipline anchor.

Source: Şeker Yatırım, Chief Economist Abdülkadir Doğan

IMPORTANT DISCLOSURE: PA Turkey intends to inform Turkey watchers with diverse views and opinions. Articles in our website may not necessarily represent the view of our editorial board or count as endorsement.

Follow our English language YouTube videos @ REAL TURKEY: https://www.youtube.com/channel/UCKpFJB4GFiNkhmpVZQ_d9Rg
And content at Twitter: @AtillaEng
Facebook: Real Turkey Channel: https://www.facebook.com/realturkeychannel/