At 2.0% of GDP, central government budget deficit was 0.3pp narrower than Medium-Term Programme (MTP) target, but in line with our forecast (Please see our CEEMEA 2013 Economic Outlook, "Turkey: Investment worthy" article). Similarly, primary surplus reached 1.4% of GDP, 0.3pp higher than the targeted level. Excluding the amnesty revenues (0.5% of GDP) and other one-off revenues (such as central bank and public bank dividends and privatisation receipts), primary balance was -0.1% of GDP in 2012, signalling a broadly neutral fiscal stance.

The better-than-forecasted fiscal outcome in 2012 was due to both an overperformance in revenues and a limited restraint in expenditures. Fiscal expenditures were 0.2pp lower than the MTP targets at 25.1% of GDP, due to a restraint in non-interest expenditures, whereas revenues were 0.2 pp higher relative to the revised forecasts. At the same time, the deficit was 0.6 pp higher than the one in 2011 on the back of an increase in personnel payments and current transfers. Despite a decline in economic activity and gradual decay of amnesty related revenues, total revenues increased by 0.3pp in 2012, mostly on the back of tax payments and profit transfers of the CBRT. Amnesty-related budget revenues declined from 1% of GDP in 2011 to almost half of that level in 2012. Transfers to Social Security Institution (SSI) increased also partly because of the decline in the amnesty related collections of the SSI. Gross debt-to-GDP ratio declined by 2pp in 2012, according to our calculations.

The usual spending spree observed in every December was partly in check in 2012. In general, spending units boost their expenditures in December with an aim to utilise their annual budget allocations, and last year, 13.2% of the annual non-interest spending took place in December. Nevertheless, in December 2012, non-interest expenditures contracted in real terms, contributing to the stronger-than-targeted fiscal outcome.

Source: bne