Türkiye achieved its largest budget surplus on record on a monthly basis in May, official data showed on Thursday, as the government shifted its focus to strengthening public finances alongside tight monetary policies aimed at curbing inflation.

The central budget balance registered a surplus of TL 219 billion ($6.7 billion), marking a sharp turnaround from five consecutive months of deficit, according to data released by the Treasury and Finance Ministry.

The surplus marked the highest in data stretching back to 2006.

The Turkish government is moving toward stricter fiscal policies, having recently announced major spending cuts and plans for an array of measures, such as a minimum corporate tax on companies.

The ruling Justice and Development Party (AK Party) is due to submit to the Parliament a package of new tax regulations to increase tax efficiency and justice and reduce informality.

That package could mark one of the largest tax overhauls in two decades.

The new initiatives are expected to generate an additional $7 billion in revenue, according to a Bloomberg report, and are likely to be approved by lawmakers, given the AK Party and its allies’ control of Parliament.

A surge in tax revenue, which formed the majority of the government’s income last month, helped counterbalance expenses such as personnel spending and social aid transfers to households.

Revenues rose 83.3% year-over-year to over TL 1 trillion in May, compared to expenditures that increased by 83% to TL 787.73 billion, the data showed.

Tax income jumped over 77% to TL 898.4 billion.

Despite the recent improvement, the budget is still significantly in deficit for the year.

The first five months have seen a gap of TL 472 billion, with the annual shortfall projected to be TL 2.7 trillion, or 6.4% of gross domestic product (GDP), according to the government’s estimates.

Revenues more than doubled compared to a year ago and totaled TL 3.24 trillion in the January-May period. Expenditures rose nearly 98% to TL 3.71 trillion, the Treasury and Finance Ministry said.

The budget ran a deficit of about $45.5 billion in 2023, or 5.2% of GDP, mainly due to a sharp increase in spending after last year’s devastating earthquakes that struck the country’s southeastern region.

Last July, Türkiye raised petrol taxes and value-added taxes (VAT) to boost revenues.

The government is pushing for stronger fiscal discipline and monetary tightening measures mainly to curb stubbornly elevated inflation, which reached an annual 75% in May.

That is said to mark the peak before tight policy and a relatively stable Turkish lira bring relief.

Authorities reversed years of loose monetary policy after last year’s general and presidential elections and delivered a series of interest rate hikes.

The last 12 months have seen the Central Bank of the Republic of Türkiye (CBRT) has gradually raised its benchmark policy rate to 50% from 8.5%.

It has pledged to tighten it more if there is “a significant and persistent deterioration” in the inflation outlook.

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