When designing and implementing economic policies, “potential future budget deficits” must be taken into account.

Now it is way easier to explain the troubles high public debt might cause. You can just cite the Greek or Italian example without making extensive technical remarks. Also, Spain is a “perfect” case on how deep-rooted problems in sectors that don’t seem to be related with the public sector – say the vulnerabilities of the banking sector – unexpectedly turn into a public sector challenge and jump the public debt, extending vulnerabilities towards the entire economy. 

‘Implicit’ liability

Also, there are implicit (potential) public sector challenges. Let’s say public debt is low and budget performance is sound with a negligible deficit. Yet, public authorities must be cautious. Turkey’s experiences in the process after 2001 as well as international examples have proven that present guarantees might cause future budget deficits. Or the budget might have implicit liabilities. For example, the government might have to allocate budget resources to finance unfulfilled liabilities of other public agencies. I am aware that this all looks like a puzzle. So let me cut the hypothetical part here and give a brief view from Ankara of this summer.

In summers, Ankara’s population decreases. This was the case this summer, too. Different from previous years, however, the traffic congestion did not ease in major routes as many roads were completely or partially closed due to the ongoing subway construction works. If promises had been kept, Ankara already would have had a couple of new routes. Though many that live in Ankara have not forgotten about those promises, they consoled themselves on the hopes that the construction works will not congest the traffic across the city.

But their hopes were shattered. First, subway construction works were suspended for a long period. Therefore, there was no process of restarting works to complete the rest of the subway route with which residents of Ankara could console themselves. Long afterwards, the municipality faded from the scene and the construction process was left to the ministry to be financed via general budget funds. It was after then the traffic chaos has begun.

Anyways… I guess this is the problem of Ankara’s residents who were not able to think of leaving the city as an option, recommended by a bureaucrat from Istanbul. It is a local issue, in other words. What is more, my purpose here is to talk about economics, not Ankara’s traffic congestion problems. So let me return to my field of expertize. 

Measures needed
The Ankara subway case is a good example on how an investment originally projected to be financed with municipal revenues was later undertaken by budget means. The moral of the story is that, when designing and implementing economic policies, “potential future budget deficits” must be taken into account. Municipalities and the Mass Housing Administration in particular might put a burden on the budget in the future? If so, what measures must be taken in advance to prevent a possible instability?

This commentary was published in Radikal daily on 30.06.2012