Turkey’s budget deficit grew by nearly 900% in 2023, a year marked by presidential elections and two devastating earthquakes. This result was welcomed by the government in Ankara, which predicted an even bigger fiscal shock, according to Bloomberg, cited by Agerpres.

President Recep ErdoganPhoto: Poole Press Office of the President / AP / Profimedia Images

According to official data released on Monday by the Turkish Treasury and Finance Ministry, budget revenues in 2023 increased by 86.1% to 5,200 billion liras, while expenditures increased by 123.8% to 6,600 billion dollars. Under these conditions, the budget deficit would rise to £1,400 billion ($46.5 billion) in 2023, an 863.8% increase from a deficit of £142.7 billion in 2022.

Despite this impressive growth, Turkey’s public finances performed better than initially forecast by the government in Ankara, which expected a budget deficit of 1,600 billion lira, or 6.4% of GDP.

Turkish Finance Minister Mehmet Şimşek said that in 2023 the budget deficit as a percentage of GDP is one percentage point lower than expected in the medium-term program.

“As a percentage of GDP, the deficit is 5.4%, which is one percentage point below the SSP’s forecast of 6.4%,” Mehmet Simsek said. He emphasized that if we exclude the costs of reconstruction after the February 6 earthquakes, the deficit for 2023 according to the Maastricht criterion was 1.7% of GDP.

Erdogan’s government has sharply raised excise taxes on fuel to cover the deficit

For their part, financial markets did not look at Turkey’s worsening fiscal situation, focusing instead on the authorities’ decision to adopt more traditional economic policies.

Turkish dollar-denominated bonds returned investors 18 percent last year, and the additional yield investors need to buy Turkish bonds has fallen sharply since President Recep Tayyip Erdogan’s re-election in May.

Tax revenues appear to have offset some of the increase in spending, thanks in large part to new special consumption taxes. For example, in June, the government in Ankara raised the fuel excise tax by almost 200% to fund earthquake recovery efforts, and also raised several VAT rates.

The catastrophic earthquakes of February 2023 killed more than 50,000 people in Turkey and Syria. The Turkish government estimated economic losses from the earthquakes at approximately $104 billion.