Ottoman State Finance: A Study Of Fiscal Deficits and Internal Debt in 1859-63

This study examines a problem of fiscal deficits based on the Ottoman budget of 1275 A.H. (March 1859–February 1860).1 In this period, state debt amassed rapidly due to increased market loans abroad. In order to evaluate the credibility of the Ottoman government for a new loan, Lord Hobart and Mr. Foster, members of the British Board of Trade, examined the 1275 budget and the balance of foreign and internal debts in 1861.2 They found that a monetary policy of issuing new paper money was an immediate problem, rather than fiscal policies causing the fiscal deficits and internal debt. Their conclusion was supportive of the new foreign loan, which the Ottomans could obtain in 1862 for the withdrawal of the paper money from circulation. Ottoman records, however, show that Hobart and Foster were not able to measure the effective size of the fiscal deficits. The deficits were larger than their estimates, to the extent of implying a high risk of the insolvency that actually took place in 1875.[...]