While the fluctuating course of the Turkish economy continues, a set of both positive and negative figures continues to attract attention. The strong increase in budget revenues, the narrowing of the deficit compared to the same month of the previous year and the primary balance giving a surplus again have created the appearance of a recovery, albeit limited, in public finances. However, there is a much tougher equation behind the numbers. While interest payments almost doubled in the first three months of the year, the delicate balance between growth and inflation is under pressure again. According to the data of the Ministry of Treasury and Finance, the central government in March Budget revenues increased by 61 percent compared to the same month last year and reached 1 trillion 230 billion lira. In the same period, budget expenditures increased by 42 percent, reaching 1 trillion 460 billion lira. Thus, while the March budget deficit decreased to 229.8 billion lira, a more remarkable improvement was seen in the primary balance.
FINANCING COSTS
However, according to experts, it is too early to say that this recovery is permanent and reassuring. Interest expenditures in the first three months of the year increased by 89 percent compared to the same period last year, reaching 876 billion lira. Interest expenses in March alone were recorded as 235.9 billion lira. This picture showed that a significant part of the recovery seen in the budget was shaped under the shadow of increasingly heavy financing costs.
INFLATION EFFECT
Analysts particularly point out that the improvement in the budget balance is fueled by the inflationary income effect and the tightening in tax collection rather than a strengthening based on increased production, investment and welfare. This shows that the recovery in public finances is due to high price increases and increasing liabilities, rather than an economic relief spreading to large segments of society.
“NO RELIEF”
Commenting on the latest table, Corporate Economics Expert Gülsev Duran lists the following warnings and findings: “The increase on the revenue side reflects the effect of high inflation and the hardening collection performance rather than a structural relief. In March, tax revenues increased by 64 percent on an annual basis, reaching 1 trillion 57 billion liras. In the January-March period, the increase in tax revenues reached 66 percent and the total collection reached 3 trillion 360 billion lira. The increase in interest rates, shares and penalties items also attracted attention in this period. “The item in question increased by 86 percent in March and by 72 percent in the first quarter.”
PERSONNEL EXPENSES
“There is a similar dual structure on the spending side. Personnel expenses increased by 44 percent to 406 billion lira in March, and by 41 percent to 1 trillion 298 billion lira in the first quarter. Current transfers increased by 66 percent in the three-month period, reaching 1.6 trillion lira. On the other hand, it was noteworthy that capital expenditures decreased by 33 percent in the first quarter, falling to 116 billion liras. “This table shows that expenditures that qualify as investments in the budget have been relatively withdrawn, while mandatory and current items have increased their weight.”
IMF SAID “28.6 PERCENT”
On the other hand, a special heading is opened in the analysis about the impact of geopolitical shock on the economy. The rise in oil and natural gas prices following the war in the Middle East creates multiple pressure lines at the same time for energy importing countries such as Türkiye. This situation was clearly noted in the evaluations published by the IMF this week. While the institution emphasized that the war-induced energy shock pressured growth downwards and pushed inflation upwards, it warned that broad-based fuel subsidies could create an additional burden on public finances. While the institution reduced Türkiye’s 2026 growth forecast from 4.2 percent to 3.4 percent, it kept the average inflation expectation at 28.6 percent.
FROM POSITIONAL TO STABLE
The latest reaction of the markets showed that the fragility in the economy was deeper than thought. Fitch’s change of Türkiye’s credit outlook from “positive” to “stable” means that international investors are no longer only interested in interest policy; It revealed that it focuses on the strength of reserves, energy prices and the course of geopolitical risks. On the other hand, in the four weeks when the war was effective While there was an outflow of approximately 6 billion dollars from Türkiye’s local debt market, the share of foreigners in government domestic debt securities decreased from 10 percent to 7 percent.
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