Treasury and Finance Minister Mehmet Şimşek Reiterates Aim to Ensure Fiscal Discipline and Lower Budget Deficit

Treasury and Finance Minister Mehmet Şimşek Sunday reiterated the country’s aim of ensuring fiscal discipline and lowering the budget deficit.

“In the upcoming period, we will not allow permanent deterioration in public finance indicators by controlling the budget deficit and re-establishing fiscal discipline. We take the necessary measures for this,” Şimşek said in a Twitter post.

Budget Deficit Increases Due to Election Spending and Earthquakes

The budget deficit for the first five months of the year was TL 263.6 billion ($10.12 billion), compared to TL 124.6 billion a year ago due to increased spending ahead of the May elections and the impact of February’s earthquakes.

Earthquake-Related Expenses and Recovery Process

The minister commented on the recovery process after the deadly February earthquakes in Türkiye’s southeast.

“This year, we anticipate earthquake-related expenses to reach TL 761.7 billion ($29.2 billion), equivalent to 3.1% of the national income,” Şimşek remarked.

He further highlighted that construction has commenced for 179,000 houses in the earthquake-stricken region, with plans to deliver 319,000 to the victims within approximately one year.

Regarding the National Solidarity Package currently under discussion in parliament, Şimşek explained its objective to mitigate the impact of the earthquake’s additional costs on the budget.

Additional Budget Proposal Presented to Parliament

The government has presented an additional budget proposal of TL 1.12 trillion to parliament.

Within the supplementary budget, the largest portion of funds, amounting to TL 483 billion, is allocated to the Disaster and Emergency Management Presidency (AFAD), while the Treasury and Finance Ministry receives TL 279.8 billion.

The additional budget designates TL 80.5 billion for interest expenses and approximately TL 101 billion for goods and services expenditures. Capital transfers and expenditures are allocated TL 484 billion and TL 67.4 billion, respectively.

According to the proposed budget, the Defense Ministry is set to receive TL 30.8 billion.

Furthermore, the draft anticipates tax collection of TL 1.15 billion, with income tax revenues estimated at TL 203.2 billion and corporate tax revenues at TL 166.3 billion.

The draft budget also outlines the collection of TL 32.6 billion from motor vehicle taxes and TL 309.9 billion from value-added tax (VAT).

Increase in VAT and Measures to Fight Inflation

Last week, the VAT on goods and services saw an increase of two percentage points. The VAT rate has risen from 18% to 20% and applies to various items like white goods, furniture and electronics.

Additionally, the VAT on other products, such as detergents, soap, toilet paper, and diapers, has increased from 8% to 10%.

Şimşek added they “will support the central bank’s fight against inflation by strengthening the coordination between monetary and fiscal policies. By reducing the current account deficit, we will also lower the country’s risk premium,” he wrote.

Visit to Qatar and Strengthening Relations

Şimşek, along with Vice President Cevdet Yilmaz, on Saturday, embarked on a visit to Qatar ahead of the president’s planned trip to the Gulf.

The two met with Qatar’s Emir, Sheikh Tamim bin Hamad Al-Thani on Sunday.

Yılmaz and Şimşek will also meet delegations to strengthen relations between Türkiye and Qatar and evaluate economic cooperation opportunities.

President Recep Tayyip Erdoğan is expected to visit Saudi Arabia, Qatar and the UAE on July 17-19.

Expectations for Investments from Gulf Countries

Reuters reported on Friday Türkiye expects Qatar, Saudi Arabia and the United Arab Emirates (UAE) to make direct investments of some $10 billion initially, and $30 billion in total, in its energy, infrastructure and defense sectors on the heels of Erdoğan’s visit to the three countries.

Since 2021, when Türkiye launched a diplomatic effort to repair ties with Saudi Arabia and the UAE, investments and funding from the Gulf have helped relieve pressure on Türkiye’s economy and hard currency buffer.