Turkey’s Treasury ministry is working on legislation to transfer the central bank’s 40 billion lira ($6.6 billion) in legal reserves to the government’s budget to shore it up, three economic officials told Reuters. The budget is deeper in deficit than expected, said the sources, who requested anonymity because they were not authorized to speak publicly. It was unclear when or whether the draft law would reach parliament, however, though one of the sources said it would happen “soon.”
Turkey’s economy tipped into recession last year after the lira fell sharply. The currency is under pressure again, in part due to worries over the central bank’s depleted foreign exchange reserves, which would help it defend against another crisis.
Separate to foreign exchange reserves, “legal reserves” are what the central bank sets aside from profits by law to be used in extraordinary circumstances. At end-2018, they stood at 27.6 billion lira, according to the bank’s balance sheet data.
A second source with knowledge of the matter said last year’s “legal reserves” combined with this year’s amounted to the 40-billion lira figure, which was cited by all three people who spoke to Reuters.
“The Turkish central bank has around 40 billion lira in legal reserves. The transfer of this amount to the 2019 central administration budget was seen as suitable. This step aims at improving and strengthening the budget,” the second source said.
It remained unclear how much of the reserves would ultimately be transferred and what, if any, new requirements would apply to the central bank. Central Bank and Treasury ministry officials could not immediately be reached for comment.
The transfer would mark the second recent move by Ankara to tap the central bank’s funds to boost its budget. In January, the bank transferred some 37 billion lira in profits to the Treasury three months earlier than scheduled.
“I do not remember the use of legal reserves before. This method came up to stop further deterioration of the budget,” the first source said.
“There needs to be a legislation to transfer the central bank’s legal reserves. The new legislation is planned to be presented to the parliament soon.” the source said.
Turkey’s budget recorded a 36.2 billion lira deficit in the first quarter of 2019, according to Treasury and Finance Ministry data. The deficit is expected to reach 80.6 billion lira by year end.
SOURCE: Asharq Al-Awsat