Fast-growing Turkey grew faster than expected in the first six months of 2011

Fast-growing Turkey generated a budget surplus of 2.9 billion lira ($1.24 billion) in the first half of 2011, helped by 20.7 percent rise in revenues, Finance Minister Mehmet Simsek said on Friday, pledging to keep fiscal policy cautious.

A surplus of 3.1 billion lira ($1.33 billion) in June helped push a small deficit from the first five months into the black, and Mr. Simsek said Turkey would beat its budget targets this year with further privatizations outstanding.

Analysts praised the strong budget performance, particularly in an election year as the AK Party campaigned to win a third term in power which it did as expected in a poll on June 12.

However they also warned about complacency amid an increasingly uncertain global outlook, which could see the portfolio funds on which Turkey relies to finance its huge current account deficit dry up in the event of global shocks.

Turkey ended 2010 with a budget deficit equivalent to 3.6 percent of GDP, better than planned, and set a target of a 2.8 percent gap in 2011.

Mr. Simsek said Turkey’s public debt to GDP ratio would likely end 2011 below 40 percent, compared with 41.6 percent in 2010, and that a tax debt restructuring program was expected to bring in 14.703 billion Turkish lira ($8.93 billion) this year.

Lower Treasury yields and smaller debt interest payments also helped the budget performance.

Economists at Oyak Securities cut their 2011 budget deficit forecast to 2 percent from a previous 2.7 percent after the June data, noting a strong contribution from tax amnesty revenues.

Mr. Simsek said the Eurozone debt crisis meant Turkey needed to tread carefully in its fiscal policy and that its record current account deficit clouded an otherwise strong economic picture.

The economy, which grew 11 percent in the first quarter, is expected to expand at a slower pace in the rest of 2011.

“Turkey’s macroeconomic outlook and foundations are very strong, but we have to remain cautious due to global and regional economic uncertainties,” Mr. Simsek said.

He said that, while data suggested a gradual moderation of Turkey’s growth rate, it might take some time for this to be reflected in the current account deficit.

The government has faced criticism for not doing enough to tighten spending to help rein in the current account deficit, and for relying too much on higher revenues generated by the stellar growth rate to improve the budget.

A credit boom has sent imports flooding into the country, driving up external deficits. Higher energy prices early in 2011 added to the pain.

“We get the impression that the public sector might be overconfident and immune to potential risks that could emerge as a result of the imbalances in external accounts,” analysts at Oyak wrote.