Y.F. Macro Focus: Transfers to FX protected deposit accounts and SOEs put downward pressure

In April, budget gave a deficit of TRY50.2bn (Apr.21: TRY-16.9bn, Mar.22: TRY-69bn). Despite, there was no consensus available for the data, Treasury cash balance (leading indicator), gave TRY43.7bn of deficit in April, higher than TRY 30.4bn compared to same period in the previous year. Hence, we could say the budget deficit (higher than TRY 33.3bn in YoY basis) gave a weaker outlook than the cash surplus in April. Additionally, the primary balance posted a deficit of TRY 31bn in April (Apr.21: TRY +1.7bn, Mar.22: TRY-42bn).

Budget revenues increased by TRY 70.3bn YoY, up by 3% YoY in real terms, to TRY 164.1bn. Tax revenues increased by TRY 60bn, and up by 5% YoY in real terms, to TRY 136.3bn, while non-tax revenues increased by TRY 10.4bn YoY, down by 6% YoY in real terms, to TRY 27.8bn. The highest contribution to the tax revenues came from taxes on foreign trade and Special Consumption Tax. Value Added Tax (VAT) revenues decreased by 29% YoY whereas Special Consumption Tax (SCT) revenues increased by 9% in real terms. This indicates a mixed outlook in the economic activity. Despite weak performance of VAT revenues indicates a momentum loss in the economic activity, recovery in SCT revenues (mainly driven by SCT on motorized vehicles) in real terms after months deserved attention.

Budget expenditures increased by TRY 103.6bn YoY, and up by 14% YoY in real terms, to TRY 214.3bn. Non-interest expenditures increased by TRY 103bn YoY, and up by 25% YoY in real terms, to TRY 195.1bn, and interest expenditures increased by TRY 0.6bn YoY, down by 39% YoY in real terms, to TRY 19.1bn. Under non-interest expenditures, the highest contributions came from current expenditures (mainly driven by bonus payments to pensioners due to the Ramadan Feast, transfers to FX protected deposits and shares for local administrations) and lending (increased by TRY10.2bn to TRY11.9bn, TRY10.1bn of increase came from lending to State Owned Enterprises).

Tax revenues seems weaker than the increase on non-interest expenditures. In 4M22, budget gave a deficit of TRY 19.4bn YoY (4M21: TRY +5.9bn), which refers to 7% of annual target. 2022 year-end budget deficit and budget-to-GDP targets were TRY -278.4bn and -3.5%, respectively (2021: -192.2bn, -2.9% of GDP). As of April 2022, 12-month budget deficit was TRY 217.5bn (2021: TRY 192.2bn). Additionally, primary surplus was TRY 84.6bn in 4M22 (2022 Target: TRY -38bn, -0.5% of GDP, 2021: TRY-11.4bn, -0.2% of GDP) whereas 12-month primary deficit was TRY -0.1bn (2021: TRY -11.4bn). Tax revenues gave a weak performance compared to non-interest expenditures recently. This could be seen as a sign for the slowdown in the economic activity mainly driven by the weakness in domestic demand due to the erosion in the purchasing power. Additionally, tax rate cuts on basic goods to fight against inflation, transfers to FX protected deposits and SOEs put additional downward pressures on the budget outlook. In 4M22, total lending to BOTAS was TRY 58.2bn (4M21: -) and total transfer to FX protected deposits was TRY 16.3bn (4M21: -). Pace of the economic activity would continue be important determinant for the budget performance. Our year-end budget-to-GDP ratio estimate is at -4% for 2022. Budget data of May to be announced on June 15.


Y. F. Securities Research