Maybe, These Economists Are Not Crazy, After All…
I argued, exactly a month ago, in a column published in Daily News and Economonitor, that the fiscal numbers were not as strong as they looked. The April figures were released last Monday, so we can see if my argument still holds true.
First, the overall numbers continue to look impressive:
This relationship is continuing to be driven mainly by very strong tax revenues, more than making up the robust non-expenditures growth:
In April, non-interest expenditures rose by 8.3% yoy, whereas tax revenues increased by 25.8% yoy. I should say that this is not bad two months before the elections, but it is not fiscal restraint, either- as economy tzar Babacan and FinMin Simsek are claiming. Finally, note that a significant part of the increase in taxes came from taxes on international trade, which rose by 49% yoy. If history is any guide, this tells me that the trade deficit should be on the order of USD 10bn in April:
So the current account deficit is showing no signs of slowing down. Just as some food for thought on where monetary and fiscal policy should be headed… But will they be headed that way?- that’s an entirely different question, to which the answer should be, “not before the elections”. But I wish we’ll see some serious adjustment soon afterwards…
BTW, all figures are courtesy of my friends at Turkey Data Monitor.
3 Responses to “Maybe, These Economists Are Not Crazy, After All…”
economopoulos • May 23rd, 2011 at 4:00 pm
Oh my!: http://www.bloomberg.com/news/2011-05-23/turkey-l…
Nobody seems to want to mention the 'c' word, but clearly, we are heading fast toward a major crash. How big a crash do you think it will be (say, compared to the 2001 crisis)? What exactly will it involve and when do you think it will come (as I think at this point it's not a question of whether, but when)?
L_G • May 27th, 2011 at 9:15 pm
I think such a crash you describe is more than inevitable.
First is this "Arab Spring": Turkey can have a bit higher CA deficit for a while, though not for long.
Second is that I think there will be coordinated action by the government and the Central Bank: fiscal restraint, maybe structural reforms and a serious interest rate hike.
Emre Deliveli • June 2nd, 2011 at 3:03 pm
Dear economopoulos,
Sorry for the late response; for some reason, I have not been able to set up auto-notification for comments yet.
I agree with L_G that the government is well aware of the problem and will probably act, with good old fiscal restraint, and also coordinated with the CBT, soon after the elections. The question is whether the vulnerabilities will hold up until then, and that depends, more than anything else, on global sentiment…
