Turkey’s $40 Billion Bet: Şimşek Vows to Crush Inflation by 2027 — No Matter the Cost

Turkish Finance Minister Mehmet Şimşek stated that Turkey’s disinflation process remains on track, and despite external risks like oil prices and food costs, his ministry will take all necessary steps to ensure inflation declines sustainably. He also emphasized that no concessions will be made on fiscal discipline, even as budget revenues fall short.

Inflation Set to Fall Below 20% in 2026, Single Digits by 2027

Speaking to Reuters, Şimşek said that Turkey’s inflation will end 2024 within the Central Bank’s forecast range of 19–29%. He projected that inflation will fall below 20% in 2026 and drop to single digits by 2027, as long as monetary, fiscal, and supply-side policies remain coordinated.

“Monetary policy strongly supports disinflation through demand, exchange rate, and expectations channels,” Şimşek noted. “Fiscal policy’s growing alignment complements these efforts.”

He listed oil prices, additional import duties, and unprocessed food prices as limited upside risks to inflation but promised that the government will “take necessary actions against potential shocks to avoid disruption in disinflation.”

No Hard Landing, Just a Temporary Slowdown

Şimşek dismissed fears of a “hard landing,” saying the economy is undergoing a temporary slowdown, with growth expected to fall just below the 4% target set in the Medium-Term Program (OVP). He noted that the output gap remained in negative territory in Q2 and will likely stay that way through the end of the year.

He also said Turkey will close 2024 with a lower-than-projected current account deficit, but warned that the budget deficit could exceed earlier projections due to weaker revenue performance.

$40 Billion in Foreign Financing Expected Over Three Years

Şimşek revealed that $17.4 billion in external funding had already been secured in 2023–2024 for development projects, including deals with the World Bank, Islamic Development Bank, and Asian Infrastructure Investment Bank. By 2027, total foreign financing is expected to exceed $40 billion.

Strict Commitment to Spending Discipline

Despite lower-than-expected budget revenues, Şimşek stressed that there will be no deviation in spending.

“The nominal spending ceiling set in the 2025 Budget Law is absolute. We will strictly remain below this threshold,” he declared.
“As in 2024, we will remain under the non-interest spending cap.”

While the OVP targets a 3.1% budget deficit-to-GDP ratio for 2025, a recent report by the Presidency’s Strategy and Budget Office expects this to rise to 3.9%, mainly due to underperforming tax revenues. Depending on the nominal GDP path, Şimşek acknowledged that the ratio could rise further.

Structural Reforms to Drive Long-Term Growth

Şimşek highlighted that Turkey’s reform efforts are becoming more visible, with productivity, industrial transformation, green economy, and digitalization at the forefront.

“Our aim is to build a strong economic structure that ranks higher in global value chains, delivers current account surpluses in the medium term, and prioritizes sustainability,” Şimşek said.