IV Macro Policy & Sovereign Debt
Primary balance
The gap between government revenue and spending excluding interest payments, showing whether the budget is in surplus or deficit before debt service.
How it works
A budget balance can be read in two ways. The overall balance subtracts all spending, interest included, from all revenue. The primary balance leaves interest payments out of the calculation. The ECB glossary defines it as general government net borrowing or net lending excluding interest payments.
When revenue exceeds non-interest spending, the budget runs a primary surplus; when it falls short, a primary deficit. A government can post a primary surplus and still run an overall deficit. The reason is the interest bill: if interest payments are larger than the primary surplus, the difference is covered with new borrowing.
Three variables set the direction of the debt ratio: the primary balance, the average interest rate on debt and nominal economic growth. If the interest rate exceeds growth, a primary surplus is needed just to hold the debt ratio steady. The measurement trap is confusing the central government budget with the general government balance. Their coverage differs, so the figures are not interchangeable.
Why it matters here
In Türkiye's 2027 budget proposal, non-interest spending sits just below revenue, so the entire deficit stems from interest. Against that backdrop the CBRT's rate decision sets not only inflation but the Treasury's cost of rolling over debt. When geopolitical outlays such as defence or energy subsidies erode the primary balance, the deficit widens through two channels at once. In reading debt dynamics we look first at the primary balance, then at the gap between interest rates and growth.