Treasury’s cash, Central Bank’s gold reserves rising

The state budget revealed a 31.6 billion Turkish Lira deficit in the first nine months of the year. The yearend fiscal deficit will come to 61 billion liras, according to assumptions based on the revised mid-term economic program.

Here’s the situation with the Treasury, which is responsible for financing the deficit: As the nine-month cash deficit amounts to 40 billion liras, this means the Treasury has already borrowed 67 billion liras net.

Thanks to borrowing more than one and a half times the budget gap, additional cash deposits at the Central Bank hit 30 billion Turkish Liras.

Now here is the question: Why has the Treasury chosen to create an extra cash surplus by continuing to borrow?

Economists and analysts have been questioning this cash pile since May. But the answer still isn’t clear. 

I asked a minister involved in the economy about it, but was told that this was a “technical detail” and that it would be better to question the “technocrats.”

During the “omnibus bill” discussions at the Planning and Budget Committee, Finance Minister Naci Ağbal spoke of the Treasury’s need to generate more cash assets for the beginning of 2018 while borrowing more than the fiscal deficit.

 “The Treasury needs to maintain stronger cash reserves in order to finance certain additional needs and projects beyond the budget balances,” he said.

And yet, we don’t know what those “needs and projects” are.

The Treasury’s timetable doesn’t paint a “stressful” picture. Nor does it display an urgent need to create a cash pile with regard to domestic and foreign debt payments.

Over the next three months the Treasury’s debt payments, including domestic and foreign, will total approximately 21 billion liras. This means that relieving debt pressure does not figure among the reasons for creating a cash pile.

Another subject that accompanies the Treasury’s tendency to pile up cash is a policy change in the Central Bank reserves.

In mid-June, I wrote about how the Central Bank has sought to increase its own net gold reserves, thus changing the 40-year-old reserve policy. We can observe this happening with the two-to-three metric tons worth of buying. “Net gold reserves” means it becomes its own property by excluding gold liabilities such as reserve requirements placed on banks.

Starting in May, the Central Bank raised the amount of gold stocked in its own reserves from 116 metric tons to 171 metric tons, with some intake in mid-October.

If we express this in dollar terms, a $2.3 billion worth of gold reserve was added to the $4.7 billion worth of gold on May 5.

That’s why the treasury’s gold reserves currently stand at $7.1 billion.

In summary, the Central Bank has been converting its foreign currency to gold since May. The gold portion of net foreign exchange assets rose from 14 to 20 percent.

It is hard to explain the meaning of the two concurrent developments, that of the Treasury’s cash piling and the boost in the Central Bank’s net gold reserves.

On Oct. 3, the deposits the Treasury keeps at the Central Bank broke a record and reached 45 billion liras. In the past 30 days, that average reached 40 billion liras. What is it that leaves us in the dark?

They go hand in hand, the strengthening of cash assets and the consolidation of gold reserves.

I guess Ankara has the answer, and that these questions have more to do with them than “technicalities.”