İrfan Hüseyin Yıldız: The economy is losing its balance

It is important to strike two balances in terms of achieving and maintaining stable economies. This is what we call inner balance.budget balance“and what we call the external balance”is the balance of payments”.

Turkey was affected by the deterioration of the external balance in almost all the crises it experienced after the 1950s, and in some the internal and external balances were disturbed at the same time. During the 20 years of AKP government, the deterioration of the external balance has not been a problem in general, but attention has been paid to ensuring a balanced budget and ensuring budgetary discipline.

Remember that in this period, international financial conditions are also conducive so that the external balance is not a problem. It has been possible to obtain the necessary funds for growth from the international borrowing markets, that is, to finance growth through the balance of payments. In this way, fiscal discipline could be maintained, and since there was no need to borrow, there was no interest pressure on the domestic market, and fiscal policies could be used against inflation. .

However, starting in 2018, international financial conditions changed, the debt burden gradually increased, borrowing costs increased, and it became increasingly difficult to borrow. Turkey’s risk premium has increased, the abundance of money in the markets has come to an end, and more developed economies have started using existing money.

The management of the economy, which in no way wants to make concessions on growth, has started to use fiscal policies for this purpose. The fiscal balance could be managed on an ad hoc basis with ad hoc ancillary revenue (such as tax amnesty). However, by 2022, we see that control of the budget is gradually lost and that budget deficits again fuel inflation.


We began the introduction to our article by emphasizing the need to control internal and external deficits in balanced structures. At the point where we are in mid-April, we are faced with the following set of data: Although the direction of the economy has not yet made a revision, international economic institutions have begun to withdraw their growth forecasts for the Turkish economy. (The growth forecast for 2022 was forecast at 5% in the medium-term plan.) In its report announced in early April, the World Bank cut Turkey’s growth forecast from 2% to 1.4%. He also announced his 2% forecast in January. In other words, he made an economic forecast that could not grow even to the potential level. On the other hand, the World Bank has announced its estimates of the current account deficit and fiscal deficit, which are important for Turkey’s internal and external balance, as follows: it has predicted that the current account deficit ratio to national income would be 6.4% and the ratio of budget deficit to national income would be 5.2%.

The situation that should worry the economies is the case of a bilateral deficit. The fact that the current account deficit is widening is due to “October 2021”new business modelThis confirms that I am not working. It is clear that this situation will once again put pressure on exchange rates. In addition, the pressure of inflation on exchange rates is increasing. It does not seem possible to prevent this further with guaranteed deposit practices by the exchange. The growth of the budget deficit, on the other hand, will mainly increase the need for public financing and put pressure on interest rates. Monetary expansion, like borrowing or printing money, will inevitably increase inflation. From this point of view, it can be said that the government has not defined a basic policy in the fight against inflation.


So, is the fiscal side really in trouble? Similarly, can fiscal data be considered a leading indicator? Can it be used as an inflation indicator?

We have Treasury cash realization data for March 2022. According to these results, the cash balance showed a deficit of TL 23 billion at the end of the first three months. In the same period of 2021, this figure was over TL 11 billion. We should also remember that the dividends paid by the Central Bank have an effect on these results. On the other hand, let’s not forget that the annual cash deficit has been growing steadily since 2019.

For years, we were used to the current account deficit. However, the budget deficit evolved under control. At the point where we are, we have arrived at a dangerous situation such as managing both a current account deficit and a budget deficit. The binary deficit is always risky. This increases risk on both the exchange rate and inflation side.

The government’s stubborn preference to pursue expansionary policies and its unscientific attitude towards interest rates are putting the country in deep trouble.

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