Turkey’s government is reviving plans to transfer the central bank’s 46 billion lira ($8 billion) in legal reserves to its deteriorating budget to shore it up and is also considering adjusting some tax measures as it battles recession, sources said.
A Treasury official and three other sources familiar with the plans confirmed that the funds – which are separate from the central bank’s foreign exchange reserves – were being eyed to help narrow a budget deficit that has widened by 225% in the first five months of the year.
The Treasury ministry’s proposals were expected to be presented to parliament in a few weeks, after which they could be passed into law, the sources said.
Such a transfer from the central bank would mark the latest unorthodox attempt by President Tayyip Erdogan’s government to pull Turkey out of recession and steady the lira following a currency crisis last year.
Reuters reported in May that the Treasury was working on a plan to transfer some 40 billion lira of the legal reserves, but it was later shelved amid a market backlash including worries about weakening the bank’s ability to respond to another crisis.
The “legal reserves” are what the central bank sets aside from profits by law to be used in extraordinary circumstances.
“The planned regulation amendment for legal reserves was not completely dropped. It was on hold during that time,” said one of the officials with knowledge of the matter. “There is a will that it would be included into a proposed legislation.”
Turkey’s budget recorded a 66.5 billon-lira deficit in the first five months of this year, even after the central bank transferred in some 37 billion lira in profits in January, Treasury and Finance Ministry data showed.
The government predicts an 80.6 billion lira deficit this year, or a 1.8% ratio versus Turkey’s GDP. Economists generally expect the ratio to be more than 3%, though the addition of the legal reserves would lower that by about one percentage point.