Privatization revenues to cut Turkey's budget deficit

A total of 2.5 billion YTL ($2 billion) from privatisation revenues will be used to finance the unfinished Southeastern Anatolian Project (GAP) that is seen as a core source amid the global food crisis.

Turkey, whose loan program with the International Monetary Fund (IMF) expires this month, had targeted a budget deficit of 18 billion YTL ($14.4 billion) for 2008, after last year's deficit came in at 13.9 billion YTL ($11.1 billion).

"For example, some items like privatization revenues will come straight to the budget. In this situation, tax collection connected to an economic slowdown could fall, VAT collection could rise because of inflation, but with the new sources of revenue the budget deficit is expected to remain at 12-13 billion YTL ($9.6-$10.4)," one uncited official was quoted as saying by Reuters.

At the weekend the Turkish government announced a new economic program, under which it cut the primary surplus target -- a closely watched measure of a country's ability to pay its debt -- and said it planned to increase investment in its GAP project in the southeastern province of Turkey. The program caused concern among some investors that it could fuel inflation and increase Turkey's risk premium.

Currently, privatization revenue is used to pay off Turkey's large debt pile stemming from a 2001 financial crisis. Under the new system, transfers to the budget and to GAP would come from the cash surplus of the privatization fund.

As part of the new program, Turkey will transfer 2.5 billion YTL ($2 billion) from privatization revenues next year and 1.3 billion ($1.1 billion) from an unemployment fund to the GAP project, official said.

"The transfers to GAP will continue until the end of 2012," said another high level official, who also declined to be named. "The figures of 2.5 billion ($2 billion) and 1.3 billion ($1.1 billion) will be increased each year according to inflation."

The officials said the new program assumed a gross domestic product of 900 billion YTL ($721 billion) this year. That compares with last year's current price GDP figure of 856 billion YTL ($685 billion).

Economy Minister Mehmet Simsek said on Tuesday that growth was seen at around 4.5 percent this year.