* Turkey does not fit category of conventional wealth fund
* Fund regarded as 'quasi-fiscal instrument'
* Balance of payments shock is larger risk to public
(Adds quotes, details)
By Can Sezer
ISTANBUL, Feb 10 Turkey's new sovereign wealth
fund is more akin to a national development bank, with its
design suggesting an effort to create a funding vehicle by
leveraging up assets, S&P analyst Frank Gill said on Friday.
Turkey has transferred government stakes worth billions of
dollars in Turkish Airlines, major banks and
fixed-line operator Turk Telekom to the fund set up last year to
help finance big-ticket infrastructure projects.
"In this way we regard it as a quasi-fiscal instrument,
almost akin to a national development bank, that can be used to
finance public spending outside of the central government
perimeter," Gill, Senior Director Sovereigns and International
Public Finance EMEA, said in emailed comments to Reuters.
Sovereign wealth funds are generally used by
commodity-exporting countries to enable them to save a portion
of their large external surpluses to hedge against commodity
"Turkey doesn’t fit into this category. It does not operate
an external surplus; it operates a deficit. Nor is it a
commodity exporter," Gill said.
"So the design of Turkey’s sovereign wealth fund suggests an
effort to create a funding vehicle by leveraging up
public/private assets," he said.
At a time when private spending is declining it makes sense
to try to increase public investment in infrastructure, as long
as the spending is transparent, Gill said.
He said S&P was watching the extent to which the wealth fund
would get access to a share of social security system revenues,
which it would consider part of central government spending.
But the larger risk to Turkish public finances still stems
from the risk of a balance of payments shock that could lead to
a sharp decline in domestic spending and a widening of the
budgetary deficit, Gill said.
S&P has a "BB" sovereign rating on Turkey after cutting it
further into junk territory last year. Last month it cut its
outlook to "negative" from "stable", citing growing constraints
on policymakers' ability to contain inflation and shore up the
lira currency, which has seen sharp falls this year.
(Writing by Nick Tattersall; Editing by Daren Butler and Toby