ANKARA (Reuters) - Turkey has for now abandoned a currency-boosting plan to transfer some 40 billion lira (£5.1 billion) from the central bank’s legal reserves to the Treasury, two sources close to the issue told Reuters on Friday.
On Monday, Reuters reported that the Treasury ministry was working on legislation to transfer the legal reserves to the government’s budget to shore it up, and to support the beleaguered Turkish lira.
“It has been cancelled for now,” said one of the sources, both of whom requested anonymity.
Economists were concerned over the unorthodox plan to steady the currency, which slipped after the Reuters report on Monday. They also expressed worries over a one-time fiscal boost before the re-run of Istanbul elections on June 23, after which the economy could experience a tightening.
The central bank by law sets aside “legal reserves” from its profits to be used in extraordinary circumstances, and they are separate from its forex reserves which have dwindled in recent months. At the end of 2018, the legal reserves stood at 27.6 billion lira, according to the bank’s balance sheet data.
In January, the bank transferred some 37 billion lira in profits to the Treasury three months earlier than scheduled.
Despite that January boost, Turkey’s budget recorded a 54.5 billon lira deficit in the first four months of this year, Treasury and Finance Ministry data showed. The government’s forecast for 2019 year-end deficit is 80.6 billion lira.
Turkey’s economy tipped into recession after last year’s currency crisis, which trimmed the value of the lira by 30 percent.
Reporting by Orhan Coskun; Writing by Ezgi Erkoyun; Editing by Jonathan Spicer