Turkish budget deficit low

ANKARA (Reuters) – Turkey’s prime minister reported a fall in the country’s 2006 budget deficit to well below a government projection, and promised on Thursday not to let looming elections deflect him from financial discipline. Recep Tayyip Erdogan’s comments and the data gave some support to weaker financial markets and drew a positive reaction from economists. Erdogan told a news conference the central government budget showed a deficit of 3.9 billion lira ($2.78 billion) in 2006, or 0.7 percent of gross national product. This compared with an officially projected deficit of 13.996 billion lira and with a deficit of two percent of GNP in 2005. The full year budget primary surplus, a key measure of the country’s loan accord with the International Monetary Fund, was 41.9 billion lira, compared with a target of 32.264 billion. The budget is designed to sustain a high primary surplus and tight fiscal policies under the IMF deal. The primary surplus excludes interest payments on Turkey’s heavy debt load. Erdogan said he did not see a risk to the economy from elections in 2007, when Turkey will hold both presidential and general polls. «We will not implement an election economy and we will adhere to financial discipline,» Erdogan said. Dealers said there was a positive market reaction to Erdogan’s speech, in particular an indication that inflation would ease from April, helping limit a wave of profit-taking driven by weakness in global markets. Erdogan said investment spending in the budget amounted to 14.6 billion lira in 2006, up 27.3 percent on the year. An economy official told Reuters on the sidelines of the news conference that the primary surplus, as defined by the finance ministry, was 7.5 percent of GNP and the surplus as defined by the IMF stood at 6 percent. The net public debt stock was expected to have amounted to less than 50 percent of GNP at the end of 2006, Erdogan said. «At the end of last year, the public sector borrowing requirement’s ratio to GNP was a negative 3.1 percent,» said Erdogan, adding that foreign exchange-indexed debt fell to 20 percent of total debt. He also said that the social security deficit reached 23.5 billion lira in 2006. ‘Huge progress’ Economists said the budget figures showed the success of Turkey’s recovery since a deep financial crisis in 2001. «Note that the deficit has been cut from 16 percent of GNP in 2001 (to 0.7 percent in 2006). This just underscores the huge progress made by Turkey on the reform front in recent years,» Tim Ash of Bear Stearns said. «In conclusion these are good numbers and the government is eager to blow its horn as it heads into an election year,» said Ash. The IMF has urged Ankara to keep spending under control to meet its ambitious primary surplus target. Both the IMF and the Turkish central bank have expressed concern about the potential for over-spending during the election year. Erdogan said inflation, which ended last year at around double the government’s five percent target, is expected to start showing «positive results» from April. The central bank’s twice-monthly external survey on economic expectations on Thursday indicated a worsening of inflation predictions compared with a fortnight ago. The consumer price index was forecast to end this year at 7.16 percent, compared with 7.04 percent in the previous survey, sharply above a government target of 4 percent. GNP growth expectations were unchanged at 4.7 percent.