ECONOMY

A difficult budget goal

ANKARA (Reuters) – Turkey is expected to have difficulty meeting its key IMF-sought public sector primary surplus in 2007 as the government has sold off many profitable state companies that contributed revenues to the budget. On Tuesday, Turkey unveiled budget plans for 2007, an election year, that some economists branded spendthrift. The government insists it has no plans for a populist spending spree and says it is committed to budgetary discipline. The Finance Ministry said in a statement it planned a budget expenditure of 204.9 billion lira (111.2 billion euros) for 2007, down slightly from an earlier target of 207 billion lira but still well above an estimated 174 billion lira in 2006. The government targets a public sector primary surplus of 6.5 percent of gross national product in 2007, the same as this year. «State companies have provided 1.5 points of the 6.5 percent so far while five points came from the budget. This is no longer possible (due to the privatizations),» Garanti Bank’s Ali Ihsan Gelberi said. He added the budget primary surplus – now set at 5 percent – had to be higher to help cover the 6.5 percent target, and this could prove difficult. Turkey has sold off many state companies such as oil refiner Tupras, fixed-line operator Turk Telekom and steel maker Erdemir under loan deals with the International Monetary Fund since a deep 2001 financial crisis. The budget for 2007 is consistent with Turkey’s IMF-backed economic program, despite a higher budget deficit stemming from heavier interest payments after market turmoil in May-June pushed up interest rates, HSBC chief economist Murat Ulgen said. But Gelberi said interest expenditure would probably be higher than the government’s projection of 52.9 billion lira. Economic sources say the International Monetary Fund, which has a team in Turkey this week for talks under its $10 billion standby deal with the country, was unhappy with the earlier draft and had urged Ankara to trim spending or hike revenues. High primary surpluses have helped Turkey to cut its debt stock and reduce interest rates over the last four years. Economy Minister Ali Babacan said in London on Wednesday Turkey would continue to generate high public sector primary surpluses while also maintaining a tight fiscal policy. Next year’s budget sees revenues at 188.2 billion lira, a primary surplus of 36.2 billion lira and a budget deficit of 16.7 billion lira. A jump in non-interest spending could signal looser fiscal discipline in 2007, said Ulgen. Non-interest spending projection for 2007 is 21 percent higher than the end-2006 estimate. Economists say a projected 20 percent rise in tax revenues versus an estimate of 5 percent gross national product growth is too optimistic.