TURKEY: Coalition seeks 'revolutionary', balanced budget

01 November 1996

The Islamist-led coalition government submitted an ambitious 1997 budget to parliament on 18 October aiming to strike an overall balance. Opposition critics immediately attacked the budget and its goals as unrealistic and contradictory.

Prime Minister Necmettin Erbakan described the budget as 'revolutionary', while Minister of State for the Economy Ufuk Soylemez said it would be the first balanced budget for 36 years.

The balance in the total TL 6,255 million million budget will be achieved by lowering domestic debt servicing and increasing revenues. The latter will largely be achieved by tapping new resources, outlined in two packages announced since the coalition took office at the end of June. In addition, a supplementary budget valued at TL 17,000 million million will be introduced in April.

Taxes will provide the largest share of revenues, rising by 98.5 per cent to TL 4,368 million million compared with the 1996 budget. However, non-tax normal revenues are projected to rise by 765 per cent to a total TL 1,445 million million.

Erbakan pledged on 18 October that domestic debt-servicing would decrease in 1997 to the equivalent of around $13,800 million from the $18,500 million scheduled in 1996. In local newspaper interviews published on the same day, the premier claimed that domestic borrowing would cease, although this was denied by Deputy Prime Minister and Foreign Affairs Minister Tansu Ciller.

Transfers account for the highest share of expenditures, at TL 3,385 million million, but represent a rise of only 40.2 per cent over estimates for 1996.

Domestic and foreign interest payments will amount to TL 1,846 million million of total transfers, up only 23.7 per cent on 1996 estimates.

The actual 1996 consolidated budget would have been in surplus rather than registering a January-September deficit of TL 751 million million, were it not for heavy domestic debt servicing by the treasury, according to economists. The nine-month deficit rose steeply from a TL 660 million million shortfall in JanuaryAugust on a trend pointing towards a deficit of TL 1,300 million million by the end of 1996, economists say.

The 1997 budget provides for a 71.8 per cent increase over 1996 estimates in personnel expenditures to TL 1,864 million million. However, Erbakan also pledged that public sector wage hikes would keep pace with inflation, now running at 80-90 per cent.

In effect this amounts to foreign exchange indexing, since the lira's depreciation on foreign exchange markets will track inflation, Finance Minister Abulattif Sener was quoted as saying in the local press. But indexing public sector wages to inflation will make a budget balance even more difficult to achieve, according to economists. However, Erbakan promised that public sector employees would receive a further wage rise in line with gross national product (GNP) expansion.

Investment allocations represent the largest spending increase compared with 1996 estimates, rising by 131.6 per cent to TL 524,600 million million.

The budget and its attached economic programme target growth in GNP of 4 per cent to TL 25,360 million million, and a GNP deflator of 65 per cent. GNP growth in 1996 is expected to work out at between 78 per cent, after settling back from a soaring 10.3 per cent in the first half.

On the external account, the 1997 economic programme targets a $20,500 million trade deficit resulting from exports of $29,500 million against imports of $50,000 million, and a current account deficit of $5,600 million. The budget also targets an average exchange rate for the year of TL 135,000 = $1.

The 1996 current account deficit is expected to be around $7,000 million, economists say.

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