Mixed denomination of Turkish lira banknotes. Image Credit: Bloomberg

ANKARA. Turkey’s government is reviving plans to transfer the central bank’s 46 billion lira ($8 billion) in legal reserves to its deteriorating budget to help shore it up, and is also considering adjusting some tax measures as it battles recession.

A Treasury official and three other sources familiar with the plans confirmed that the funds — which are separate from the Turkish central bank’s foreign exchange reserves — were being eyed to help relieve a budget deficit that has spiked by 225 per cent in the first five months of the year.

The Treasury ministry’s proposals were expected to be presented to parliament in a few weeks, after which they could be passed into law, the sources said.

Reuters reported in May that the Treasury was working on a plan to transfer the legal reserves, but it was later shelved amid a backlash including worries about weakening the bank’s ability to respond to another crisis.

The “legal reserves” are what the central bank sets aside from profits by law to be used in extraordinary circumstances.

“The planned regulation amendment for legal reserves was not completely dropped. It was on hold during that time. There is a will that it would be included into a proposed legislation,” said one of the officials with the knowledge of the matter.

The tax measures under consideration included introducing a new income tax band of around 50 per cent for those earning annual income of more than 1 million lira, three of the sources said.

They also included reducing the corporate tax rate to 20 per cent from 22 per cent, they said.

If enacted, the transfer from the central bank would mark the latest unorthodox attempt by President Tayyip Erdogan’s government to pull Turkey out of recession and steady the lira following last year’s currency crisis.

The lira lost 30 per cent against the dollar last year and another 10 per cent so far this year in part due to worries about a rundown in the central bank’s net reserves, which are different from legal reserves.

At end-2018, the legal reserves stood at 27.6 billion lira, according to the bank’s balance sheet data.

“It is a reality that budget needs to be supported,” a second official said.

“The expected transfer of 46 billion lira in legal reserves would in part fix the outlook of the budget. We will see this amount in the budget after the final approval” by Erdogan.

(Reporting by Orhan Coskun; Additional reporting by Nevzat Devranoglu and Ezgi Erkoyun; Writing by Jonathan Spicer; Editing by Dominic Evans and Toby Chopra)