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Analysis

As Turkey grapples with deficit, Erdogan pins his hopes on Gulf funds during visit

Ankara is hoping for an inflow of Gulf dollars as the battered lira remains under pressure amid a gaping budget deficit and reluctance to take firmer measures to tame inflation.

Turkish President Recep Tayyip Erdogan (R) welcomes Abu Dhabi's Crown Prince Sheikh Mohammed bin Zayed Al Nahyan (R) during an official ceremony at the Presidential Complex in Ankara, on November 24, 2021. (Photo by Adem ALTAN / AFP) (Photo by ADEM ALTAN/AFP via Getty Images)
Turkish President Recep Tayyip Erdogan (R) welcomes Abu Dhabi's Crown Prince Sheikh Mohammed bin Zayed Al Nahyan (R) during an official ceremony at the Presidential Complex in Ankara, on November 24, 2021. — ADEM ALTAN/AFP via Getty Images

ISTANBUL — A huge budget deficit is among the main issues that Turkish President Recep Tayyip Erdogan and his party face after their election victory in May, but not even an extra budget is likely to remedy the government’s financial woes, aggravated by its election-centered policies

With a budget deficit on course to reach 10% of gross domestic product by year-end, this week the parliament passed a supplementary budget, allowing for additional spending of 1.1 trillion Turkish liras ($42 billion). Though that sum falls short of the needs, the government can ill afford to ask for more because of a legal obligation to equally increase revenues. Instead, the ruling party passed another bill that would allow Erdogan to allocate funds to public entities and expand his borrowing limits in a move that the opposition say is unconstitutional. 

Budget deficits are a major factor underlying Turkey’s unruly inflation, which stands at 38.2% after prices rose nearly 4% on a monthly basis in June. The government may be speaking of tackling inflation, but with local elections looming in March 2024, it has been reluctant to go for a full-fledged employment of anti-inflation measures to cool the economy, curb public spending, slow income increases and raise borrowing costs. Signs are growing that such unpopular steps would be considered only after the polls. 

As prices continue to rise, Ankara has sought to placate the electorate with pay hikes, vowing to “not let inflation crush the people.” This, however, is a recipe for a vicious cycle that only deepens economic fragilities. 

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