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HSBC Comment on Turkey’s Fiscal Deterioration

TURKEY
  • HSBC note that there was a notable deterioration in fiscal dynamics at the end of 2023 resulting in a headline budget shortfall of 5.4% of GDP, on HSBC’s estimates (from a 0.9% of GDP deficit in 2022). This was the largest fiscal shortfall since 2009.
  • In December alone, expenditures surged by 273% y/y, outpacing the 115% gain in revenues. The spending breakdown for December shows a very sharp jump in capital transfers from TRY219bn in January-November to TRY639bn in December alone, with the latter figure corresponding to 2.5% of GDP.
  • HSBC say the recipient of this transfer is not immediately clear in the available official data, but Simsek said that total earthquake-related spending during the year reached TRY950bn (3.7% of GDP). He also added that if earthquake-related spending is excluded, the budget shortfall stood at 1.7% of GDP last year.
  • With local elections due on 31 March, HSBC believe some fiscal loosening is likely this year. They make no change to their deficit forecast of 7.1% of GDP for 2024, but in light of the December data, risks may now be tilted towards an even larger shortfall, they say.
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