TEPAV Budget Warning: War and Energy Costs Threaten to Blow Out Deficit

The Turkish Economic Policy Research Foundation (TEPAV) has issued a stark warning that escalating geopolitical tensions and volatility in energy prices are pushing pressure on the country's public finances to a critical level, signaling that budget balances could be significantly shaken.

The Fiscal Price of Geopolitics

The Foundation's latest assessments reveal that the direct addition of wars to expenditure items and the surging energy import bill threaten to drive the budget deficit to undesired dimensions, even as fiscal discipline is attempted to be maintained.

■The upward impact of geopolitical tensions on energy costs continues to escalate.

■Pressure for increased public expenditure is deepening the imbalance on the revenue side.

■There is a risk that the budget deficit to GDP ratio remains above targets.

Vulnerability in Fiscal Stance

It is emphasized that the growth-oriented approach of economic management narrows the room for fiscal relief, highlighting the dilemma between the current account deficit created by the external trade gap and energy imports, and budget balances, which requires close monitoring.

Markets may react to the erosion of fiscal discipline with an inflationary backlash. If the energy bill cannot be reduced, a clash between the Central Bank's monetary policy stance and the Treasury's fiscal expansion becomes inevitable. In such a scenario, seeing a rise in risk premiums and sharp volatility in asset prices is a matter of time.