Turkey will maintain tight fiscal discipline in the coming months after data showed it was comfortably on track to meet its budget deficit targets for the year, Finance Minister Mehmet Simsek said on Tuesday. The country holds a presidential election in August and parliamentary polls next year. Heavy and conspicuous public spending was a common phenomenon in the run-up to Turkish elections in the 1990s, but budget discipline has been tighter since its 2001 financial crisis.
In June the government recorded a deficit of 613 million lira ($290 million), bringing its total shortfall for the first half of the year to 3.4 billion lira, finance ministry data showed. The government ran a primary budget surplus - excluding interest payments on its debt - of 960 million lira in June and 23.1 billion lira for the first six months of 2014, the data showed.
Turkey is targeting a 33 billion lira budget deficit by the end of the year, as government spending is traditionally much higher later in the year. "June's budget balance and primary balance figures were better than those of June 2013 as non-interest expenditures rose by a moderate 8.1 percent year-on-year in June," said Ibrahim Aksoy, chief economist at Gedik Investment. "However, the deterioration over the same period in 2013 was on account of higher non-interest expenditures, higher interest payments due to elevated borrowing costs, and inadequate tax revenue growth on relatively weak domestic demand."
Simsek told a news conference the economic impact of developments in Iraq, Turkey's second-biggest export market, would be compensated for by a recovery in Europe. He said Turkey was on track to meet its 4 percent growth target this year. He said that inflation peaked in May and that a downward trend in price increases was set to continue, falling in line with the central bank's forecast of 7.6 percent for the end of the year. Earlier in the morning Turkey's statistics office said unemployment fell to 9 percent in the three months to May compared with 9.7 percent in February to April.
Little moved by Simsek's comments or the data releases, Turkey's lira eased slightly to 2.1211 against the dollar by 0928 GMT from 2.1170 late on Monday. The benchmark 10-year government bond yield eased to 8.94 percent on Tuesday from 8.97 percent late on Monday after the Treasury tapped two existing 10-year papers and sold a new 2-year bond at slightly lower yields than forecast. The main Istanbul share index rose 0.3 percent, moving in line with emerging markets ahead of Federal Reserve Chair Janet Yellen's testimony to a US Senate committee.
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