Policy Note/Sarp Kalkan Budget Performance Paves the Way for the Current Account Deficit

"Current account deficit of Turkey at 61 billion TL is approximate to the sum of the budget deficit (or public S-I gap) at 43.6 billion TL and private savings gap at 13 billion TL. This indicates that the driving factor for high current account deficit is not the private savings gap as commonly argued, but the public budget deficit. More clearly, approximately three fourths of the current account deficit is caused by the budget deficit.

In the light of this correlation between the current account deficit and budget deficit, one must ask the following critical question: Does Turkey sufficiently tighten the fiscal policy in order to manage the current account deficit? Budget figures reveal that in the recent period fiscal policy was not tightened but loosened..."