Inflation, Interest, Instability: Turkey’s 2026 Budget Maze

As Turkey’s corporate world enters the final quarter of the year, budget preparations for 2026 are in full swing. Yet, the combination of political unpredictability, high inflation, volatile interest rates, and currency risks is making forward planning harder than ever. Economists warn that this uncertainty could erode business confidence and delay investment decisions well into next year.

According to Assoc. Prof. Oğuz Demir, political forecasting has become “nearly impossible,” leaving the government’s Medium-Term Program (OVP) as the only viable roadmap for the economy. “The OVP is filled with warning signs,” Demir said, noting that high inflation in 2025 will persist as cost pressure in 2026.

He explained that exchange rate projections are already posing challenges for importers and exporters, while rising input costs are hitting labor-intensive industries the hardest. “We expect personnel expenses to rise by 25–30% and raw material costs by 20–25% next year,” he added.

External Pressures Add to the Strain

Demir also pointed to geopolitical tensions in the Middle East and slowing global growth as major sources of risk for Turkey’s energy imports. “While the OVP envisions moderate growth, persistent inflation expectations may prevent interest rate cuts from happening as fast as desired,” he noted. Even with slightly lower financing costs, borrowing remains too expensive for large-scale investments, especially in manufacturing.

“A Year of Short-Term Thinking”

Economist Arda Tunca believes 2026 will once again be a year of short-term economic strategies, echoing the pattern of the past decade. He described Turkey’s current political environment as reminiscent of “the military coup eras or the 1950s Democratic Party period,” characterized by uncertainty and centralized decision-making.

“This atmosphere increases the risk of new shocks in the markets and creates deep concern for companies with high foreign currency debt,” Tunca said.

Exchange Rate Assumptions and Central Bank Policy

Tunca emphasized that the Central Bank’s policy of maintaining strong reserves is shaping business expectations for next year. Firms are building budgets under the assumption that the lira’s depreciation will stay below or at par with inflation, limiting their export competitiveness. Even if inflation declines, he warned, it will remain stubbornly high throughout 2026.

Interest rate cuts, meanwhile, are expected to slow down, while credit growth limits will likely stay in place. “Turkey’s greatest strength has always been its ability to withstand sharp market swings,” Tunca explained. “But that resilience has come at the cost of weakening the private sector’s ability to engage in strategic long-term planning.”

Business Leaders Warn of a ‘Long and Difficult Marathon’

This sense of unease is evident in boardrooms and trade associations. At a recent Istanbul Chamber of Industry (ISO) meeting, Vice President İrfan Özhamaratlı said the last five years of high inflation have “narrowed our horizon in decision-making and forced us to act with extreme caution.” He warned that businesses still face a “long and difficult marathon” before stability returns.

Treasury Launches New Support Packages for Sensitive Sectors

Amid this backdrop, the Ministry of Treasury and Finance announced two new support packages targeting exporters and interest-sensitive firms. Under the Treasury-Backed Guarantee System, the Export Development Inc. (İGE) will now have its guarantee limit doubled from ₺10 billion to ₺20 billion for loans extended via Türk Eximbank.

Additionally, a new ₺500 million guarantee package will support e-export (digital export) companies. For interest-sensitive firms operating under participation finance principles, a separate ₺4 billion guarantee limit has been introduced through Katılım Finans Kefalet AŞ (KFK).

The guarantee cap will be ₺20 million for SMEs and ₺40 million for larger firms, aiming to ease financing pressures in an environment of high borrowing costs and uncertain market expectations.

Business Sector Faces a Test of Endurance

Taken together, these developments paint a picture of a resilient yet weary business sector, navigating between policy shifts, financial strain, and geopolitical risk. Economists agree that while Turkey’s corporate world remains adaptable, the lack of clarity in both politics and markets means that strategic foresight has become a luxury few can afford.