The Turkish government announced on Monday that the country’s budget deficit had widened significantly in June, reaching 219.6 billion Turkish lira ($8.37 billion,) a seven-fold increase compared to the deficit recorded in the same period the previous year. The data, released by the Treasury, also revealed that the primary deficit, excluding interest payments, expanded to 182.3 billion lira, a significant surge from 18.29 billion lira in the previous year. For the first half of the year, the total budget deficit amounted to 483.2 billion lira.
In response to the widening deficit, Turkish state institutions have been urged to review their expenditures and make efforts to reduce costs. Finance Minister Mehmet Simsek signed a circular, which was sent to all state institutions, emphasizing the importance of cost-saving measures, reduction in bureaucracy, and effective resource utilization. Simsek took to Twitter to announce the government’s commitment to rationalizing public expenditure, sharing a link to a news story on the matter published by the state-owned Anadolu news agency.
The circular outlined the need for a comprehensive review of all expenditures, with the exception of those related to the devastating earthquakes that struck southern Turkey in February, claiming the lives of over 50,000 people. The earthquake-related spending was considered essential and necessary, given the magnitude of the disaster and the subsequent recovery efforts.
To mitigate the impact of increased spending related to the earthquakes and the May presidential and parliamentary elections, Turkey raised the tax on petrol on Sunday. These measures were implemented as part of a broader strategy to bolster government revenues. Furthermore, the Turkish parliament recently approved an additional budget of 1.12 trillion lira for this year. This move follows a series of tax increases implemented in recent times, including a two-percentage-point hike in value-added tax (VAT) and a five-percentage-point increase in corporate tax rates.
While these tax hikes are intended to address the budget deficit, economists have expressed concerns about their potential impact on inflation. Inflation in Turkey had already reached a 24-year high of 85.51% in October last year but has since declined to 38.21% in June. However, experts anticipate that the month-on-month inflation rate could reach double digits in July, with the impact of the tax increases likely to be felt more significantly in August.
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