Worsening Budget Puts Turkey Treasury on Borrowing Spree: Charts

  • Treasury borrowing through May exceeded the full-year target
  • Annualized cash budget deficit rises to a record $16.7 billion

Increased spending to bolster growth sent Turkey’s Treasury on a borrowing spree to plug a widening budget deficit, shaking one of the pillars of strength for the Middle East’s largest economy.

Cash budget balances have deteriorated in the last 12 months as spending spiked after a July 15 coup attempt last year and before a referendum in April gave President Recep Tayyip Erdogan sweeping new powers. Defense also became a major expense item as the army expanded operations in Syria, rising 19 percent last year to about $20 billion. The annualized cash budget deficit has ballooned to over 60 billion liras ($16.7 billion), a record, according to Bloomberg calculations using official figures.

Policy makers expect to miss their budget deficit target this year by as much as 1 percent of gross-domestic product. Finance Minister Naci Agbal has said increased spending is necessary to spur growth during cyclical downturns and that that the benefits of higher government spending outweigh risks to Turkey’s fiscal position. The government debt-to-GDP ratio was around 30 percent at the end of 2016, comparing favorably with most emerging markets and about half its level a decade ago.

Turkey’s appetite for debt is growing as the worsening budget forces the Treasury to borrow more. Planned domestic borrowing exceeds redemptions for May, taking the so-called rollover ratio to 116 percent.

The government exceeded its foreign borrowing target for this year already. Moreover, the amount borrowed through May is higher than the amount borrowed in all of 2015 and 2016, according to Bloomberg calculations using official data.

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