Record rise in Treasury’s cash deficit
In the fiscal discipline that Ankara is quite proud of, there has been a remarkable erosion that was especially prominent in March. As we approach the referendum, public expenditures are peaking.
Here is the situation: In March, the Treasury’s cash deficit for the last six months was roughly 40 billion Turkish Liras; in the same period last year, the June cash deficit was just 3.1 billion liras. All told, that’s a 12-time rise in the deficit.
What happened? Let’s look at the figures.
In the period between October 2015 and March 2016, the state spent 247.5 billion liras of cash, excepting interest rate payments. This year in the same period, expenditures have gone up to 304.7 billion liras, corresponding to an increase of 23 percent. At the same time, the rise in the total cash income during the same period has only risen 11 percent. Thus, the cash deficit of the state is now 39.8 billion liras, 12 times more than the same month last year.
Some of this cash deficit was met through available means, but the remaining 29 billion liras were met through loans. The Treasury, which loaned roughly 6 billion liras in the six-month period in 2016, has loaned 28.7 billion liras this year. In other words, cash loans have increased four times compared to last year.
Fiscal accounts of the state can be monitored in two ways: one is cash-based monitoring while the other is based on accruals. The cash-based one is supervised by the Treasury, which is the “wallet” of the public. It monitors how much comes and goes and oversees the cash situation of the state. There can be differences between cash-based and accrual-based realizations. The cash-based realization is the one that goes into the wallet. For instance, taxes can be assessed but not paid.
A more striking fact is that the primary expenditures over the past six months to March 2017 increased 49 percent compared to the same period in 2015. Who can claim that a 49 percent increase in two years is normal? Quite obviously, budget discipline is falling apart.
Budget developments announced by the Finance Ministry are accrual-based. What is seen here is that according to the same period for five months (October-February), current transfers have shown a noteworthy increase of nearly 30 percent among the primary expenditures while the budget deficit has increased five-fold.
An even stranger aspect of the issue is that the Central Bank announced it would purchase additional bonds worth 5 billion liras for its own investment portfolio in the second half of 2016 an additional 1 billion liras of bonds for all of 2017. At the end of February, the Central Bank made not 1 billion but 2 billion liras in additional purchases. Thus at the end of February, the Central Bank’s portfolio had increased by 10 billion liras to 16 billion liras year on year for no apparent reason.
While the Treasury has a cash deficit that has grown ten-fold, expenditures have also grown, increasing the need to borrow almost four times in March. All the while, the Central Bank purchased Treasury securities from markets between October 2016 and March 2017 worth 3.8 billion liras. This amount corresponds to 19.2 percent of the Treasury’s cash borrowings.
In short, the Central Bank has bought roughly 20 liras for every 100 liras of the Treasury’s cash borrowings in a move to provide indirect cash.
If this is “self-sufficiency,” then this means “welcome to the economy of the 1990s.”