TURKISH BUDGET & TURKISH DEFENCE COSTS : Turkey’s budget falters amid rising regional tension

An increase in the nation’s deficit doesn’t surprise analysts, who point to several factors including infrastructure projects and defence needs. – By Enis Senerdem for SES Türkiye in Istanbul — 12/10/12. – Turkey’s budget deficit is widening as the nation’s economy slows, bringing with it a decline in tax revenue. Growth in the deficit is not surprising in light of the sluggish global economy and costs associated with national defence, observers said. A recent review found spending on military equipment is increasing as tensions rise along the Syria border and the defence sector deals with intensified attacks conducted by the separatist Kurdish rebel PKK.

One analyst said the spending was not an overreaction, but more of a reflection of previously planned expenditures. “Turkey signs defense expenditure agreements with long-term arrangements. Increase in these purchases based on individual events is not possible,” Kamer Kasım, head of the Middle East Desk at International Strategic Studies Centre in Ankara, said. “Even if the Syria conflict becomes more intensified it will not have any impact on defense expenditures.”

Turkey’s central government budget posted a 1.5 billion TL deficit in August, according to government figures. A year ago, the budget was enjoying a surplus of more than 2 billion TL.

The nation’s January to August budget deficit for this year is about 8.5 billion TL.

An examination of the figures shows an increase in purchases related to security and defence. Spending on defense equipment hit 845 million TL in June and August, topping expenditures for the first six months of the year. In an effort to keep the budget under control, the government introduced a series of special consumption tax increases from alcoholic beverages to passenger cars, and put prominent state-owned companies, such as Turkish Airlines, on the privatisation list. Deputy Prime Minister Ali Babacan also acknowledged this year’s budget deficit to GDP ratio might exceed the government’s target by a full percentage point. The official target still stands at 1.5 percent. Erdoğan Alkin, a professor of economics at Istanbul Commerce University, said the figures are not alarming, but he blamed the worsening budget performance on other spending by the government, not the expended military equipment purchases. Alkin also predicted the projected budget deficit would exceed forecasts.

“Deterioration in budget figures is mainly derived from rising infrastructure investments and declining tax revenues due to the GDP’s slowing growth rate,” Alkin told SES Türkiye. “It seems the budget deficit will exceed the government target this year.”

However, Alkin warned against intensifying conflict with Syria and the extra burden that it might put on the government budget. “Rising tension with Syria and terrorist attacks of PKK may put the budget under pressure,” Alkin said. “We can expect a continuation of rising military equipment purchases. However the increase will be kept under control.” After artillery fire from Syria left five Turkish citizens dead in the border town of Akcakale, the Turkish parliament authorised military operations in Syria. Last week, Finance Minister Mehmet Simsek deflected critics’ comments about forming a war budget.

“The [finance ministry] is evaluating demands from various institutions and will try to meet their needs as we can,” Simsek said, adding the government was not allowing individual events dictate the direction of the budget. Gamze Coskun, a Middle East analyst, said the government’s spending actions were to be expected given recent events. “Rising geopolitical risks in the region led to an increase in defense expenditures,” Coskun said. “PKK is conducting terrorist attacks not just in the Easten region anymore. Syria is also a rising risk for Turkey. It is natural that the government is trying to be prepared for every scenario.”Coskun also said the nation doesn’t want war with Syria, but isn’t going to take any chances. “The government is making all the preparations that it can,” Coskun said. “Turkey should be ready to counter any aggressive actions towards its sovreignity. Even though this means an increase in defense expenditures.”