Turkish spending plans not an "election budget" -finmin


* Budget deficit ratio seen at 1.2 pct this year

* Simsek says fiscal discipline will remain strong

* Some economists foresee temptations to pump-prime growth

By Orhan Coskun

ANKARA, Oct 11 (Reuters) - Turkey's Finance Minister said hewould not use the runup to 2014 elections to follow pastgovernments in courting popularity through heavy spending,presenting a budget that prods the deficit higher but keeps itunder 2 percent of national output.

Next year's local elections, including a vote in Istanbul,mark the first test of Prime Minister Tayyip Erdogan's rulesince anti-government protests and riots in June. Some expertsfear a burst of public spending that could fuel inflation andput more pressure on an already huge current account shortfall.

Turkey's public debt remains one of the lowest among itspeers as a percentage of GDP but its balance of paymentsproblems prompted the International Monetary Fund last week tocall for it to tighten monetary and fiscal policy.

"We have not drafted an election budget for next year, justas we didn't in the past. We are not seeking an electioneconomy," Mehmet Simsek told a news conference.

"For the first time you will see that we are stronglycontrolling current expenditures and even reducing them in realterms. This is a strong message," he said, adding the aim was toincrease Turkey's resilience to external risks.

Erdogan was first elected in 2002, becoming head of asingle-party government after decades of fractious coalitions.Heavy and conspicuous spending in the runup to elections, on forexample roads and other infrastructure projects, was a commonphenomenon in the 1990s.

Turkey also faces a presidential election next year andparliamentary polls in 2015.

Detailing the spending plans, Simsek said the budget deficitwould stand at around 19.4 billion lira ($9.6 billion), or 1.2percent of GDP, by the end of this year, well below a previousforecast of 2.2 percent.

Turkey has benefited from higher-than-expected privatisationreceipts, particularly from the sale of electricity distributionnetworks, and other one-off revenues this year. The deficit isexpected to widen in 2014, but Simsek said it would still comein at 1.9 percent of output.

In its medium-term programme announced this week, thegovernment forecast the deficit would widen to 33.2 billion liranext year before narrowing again to 29.5 billion in 2015 and 23billion in 2016.

"Overall markets will find the discipline of the governmentbudget favourable and its stance towards the mid-term plancredible after these statements, as long as they areimplemented," said Erkan Dernek, market strategist at Odeabank.

The budget balance, which fluctuates heavily month to month,showed a deficit of 4.7 billion lira in September, giving adeficit for the first nine months of 4.5 billion and a primarysurplus, which excludes interest payments, of 39.3 billion.

Simsek said those figures showed the budget performance sofar this year had been better than anticipated.


Erdogan's government has overseen some of Europe's fastestgrowth and a near tripling of Turks' nominal wealth over hispast decade in power, a record he is keen to maintain as thecountry goes to the polls.

But his determination to keep growth high comes as Turkey,whose explosive consumption-led expansion has left it with majorstructural imbalances, is particularly vulnerable.

A gaping current account deficit, mostly driven by hugeenergy imports, has made Turkey one of the countries mostexposed to a shift in global capital likely once the U.S.central bank starts to reduce its bond purchases.

Relatively weak foreign direct investment compared toemerging market peers leaves it reliant on volatile portfolioflows and short-term debt to finance a current account gap thatexceeds 7 percent of GDP.

The government this week cut its economic growth forecastsfor this year and next, lopping one percentage point off the2014 figure to 4.0 percent after a revised 3.6 percent estimatefor 2013.

Simsek told Reuters in an interview last month that growthwas still too consumption-led but noted that structural changeswould take time.

The current account deficit narrowed to $1.995 billion inAugust, below the $2.1 billion forecast in a Reuters poll butstill significantly higher than the previous year, according tocentral bank data released on Friday.

"The current account deficit is showing scant evidence ofnarrowing, remaining enlarged and still a key Achilles' heel forthe Turkish economy," Timothy Ash, head of emerging marketsresearch at Standard Bank, said in a note to clients.

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