Steps to limit budget gap

Bloomberg

"More serious" steps will be required in the coming years, Şimşek said in Ankara Friday. "Establishing a fiscal rule and getting control of municipal spending are crucial," he said, also promising to collect more income and corporate taxes and to tighten tax inspections.

Many of the steps Şimşek listed match measures sought by the International Monetary Fund, or IMF, as part of a new loan agreement. Turkey is resisting an IMF accord and hasn’t invited a fund delegation back to the country since talks broke down in January over the government’s spending plans.

In the first four months of 2009, the budget deficit rose to 20.1 billion Turkish Liras, double the original goal for the whole of the year. The government announced a new target of 48 billion liras on April 13. A bill currently before parliament would raise the Treasury’s borrowing limit at least fourfold to help it fund the deficit.

"We have to prove that fiscal discipline will be re-established and that increased borrowing will be temporary," Şimşek said Friday.

The global crisis pushed Turkey’s economy into recession, curbing tax revenue just as rising unemployment prompts increased spending to preserve jobs and encourage growth.

Şimşek also said Turkey may renew a tax amnesty on assets repatriated to the country. Turkey overrode IMF objections to launch the amnesty last year as the global crisis cut the flow of foreign investment into the country, threatening to undermine the lira.

Turkish bonds rally

Meanwhile, Turkish bonds gained as investors’ concern eased that Turkey would delay a new accord with the International Monetary Fund until September.

Lira-denominated bonds gained for a second day this week, pushing the average yield 11 basis points lower to 12.38 percent at 11:27 a.m. in Istanbul, heading for its first monthly decline in three months, according to an index of securities tracked by ABN Amro Holding NV. A basis point is a hundredth of a percentage point.