TEPAV: "Fiscal Policy does not Stand Upright" TEPAV stated that although the budget deficit ameliorated in 2010 compared to 2009, structural budget balance has been deteriorating since 2006.

ANKARA - TEPAV stressed that although the budget deficit ameliorated in 2010 compared to 2009, structural budget balance has been deteriorating since 2006. TEPAV said, "Fiscal stance demonstrates a negative outlook." It was also maintained that the impact of the economic conjuncture on the budget performance, which improved as compared to 2009, was still negative.

The last issue of the TEPAV Fiscal Monitoring Report by the Stability Institute "2010 Budget Implementation Results: A Conjunctural and Structural Overview" was published.

The report had a section named "Budget Sensitivity to Economic Growth and the Structural Budget Balance". Stressing that the budget dynamics ameliorated considerably in 2010 as compared to 2009 and 2008, the report said, "However, this improvement might be indicating a long term and structural amelioration of the fiscal policy as well as the sensitivity of budget items, revenue items in particular, to the economic conjuncture. Therefore, sounder analysis for the long term fiscal policy can be enabled upon the adjustment of fiscal policy and budget balance to cyclical movements." The report, which examined the primary budget balance after adjusting the figures to structural and cyclical (economic conjunctural) factors, said,

"The negative impact of the global crisis on primary budget balance was 0.9% and 0.4% as a ration to GDP in 2009 and 2010, respectively. Thus, it will be wrong to associate the improvement in the budget performance in 2010 completely with cyclical factors.

On the other hand, another striking point is that the structural budget balance that reflects the long term outlook of fiscal policy demonstrated a significant deterioration over the last five years. Structural primary surplus which accounted for 5.2% of the GDP in 2006 has decreased substantially in the last two years. Fiscal stance, measured on the basis of the change in the structural primary balance shows a negative outlook excluding the slight recovery in 2010, which implies that the long term fiscal policy dynamics have been worsening."

Taking departure from the mentioned findings, TEPAV's report also reminded of the "extremely" expansionary fiscal policy that was implemented in 2007 partly due to the elections then ahead, and drew attention to the considerable worsening of the structural primary budget balance observed in this period despite the economic heating up.

TABLE: Structural and Cyclical Primary Budget Balance (% of GDP)