S&P’s Frank Gill Highlights Key Risks as Turkey Aims for Investment Grade

S&P Global Ratings Senior Director Frank Gill offered a detailed assessment of Turkey’s economic outlook, stating that the country’s long-term sovereign credit rating of BB- with a stable outlook, remains appropriate under current conditions. Speaking after the Turkey Capital Markets Conference, Gill emphasized that S&P views the existing rating level as balanced when considering the risks and improvements observed in recent fiscal performance. He noted that positive signals are emerging from the Treasury’s financial results, suggesting an early strengthening of public finances.

Inflation Fight Enters a Harder Phase

A major focus of Gill’s remarks centered on Turkey’s ongoing battle against inflation. He underscored that economic authorities remain committed to their disinflation goals. While the pace of price increases is slowing, the real challenge lies in the next stage of the process.
According to S&P Global Ratings’ projections:

Current annual inflation: around 30%
2025 year-end estimate: approximately 28%
2026 average forecast: near 20%

Gill emphasized that achieving single-digit inflation is of critical importance for Turkey’s long-term financial credibility. Achieving such a milestone, he emphasized, would be a pivotal element in elevating Turkey’s rating to investment-grade status, a threshold that shapes global capital flows and investor risk appetite.

Fiscal Policy Tightening May Become Necessary

Another key theme in Gill’s evaluation was the direction of fiscal policy. He noted Finance Minister Mehmet Şimşek’s firm stance on limiting non-earthquake-related expenditures, describing it as an essential component of the government’s broader stabilization effort. Gill also highlighted the recent improvement in VAT collection, which has contributed to stronger revenue performance.
Even so, Gill added that bringing inflation down by half may require further fiscal tightening. Sustained discipline, he explained, will be crucial for maintaining credibility and anchoring inflation expectations as the next stage of disinflation becomes increasingly challenging.

Current Account Outlook: Moderate Deficit but Persistent Risks

Beyond fiscal considerations, Gill projected that Turkey’s current account deficit will remain relatively modest, with the country’s external financing needs staying contained. Nevertheless, he warned that household behavior continues to exert upward pressure on core inflation. Strong consumer spending and persistent demand for gold and foreign currency remain two structural factors that complicate the disinflation process.

These dynamics, Gill suggested, underline the difficulty of reducing core inflation in an environment where households maintain a high preference for foreign-currency stores of value, reflecting long-standing sensitivities to inflation and macroeconomic volatility.

Banking Sector Strong but Dollarization Still a Major Issue

Commenting on the Turkish banking sector, Gill praised the industry’s management quality and highlighted the stabilizing effects of credit-growth restrictions imposed in recent years. These measures, he noted, have contributed to broader macroeconomic balance.
However, Gill cautioned that interest rate adjustments alone are insufficient to manage inflation effectively. Reducing dollarization and ensuring that complementary policy tools are in place will be essential for achieving durable price stability.

This perspective aligns with broader research indicating that economies with a high level of foreign-currency preference often require a combination of structural and monetary reforms to stabilize expectations.

Strategic Position and Long-Term Potential

Despite the near-term challenges, Gill reiterated confidence in Turkey’s long-term potential. He emphasized that high inflation distorts economic decision-making and discourages longer-term investment planning. Still, he stressed that Turkey’s strategic location between Asia and Europe offers tremendous opportunities for growth, integration, and competitiveness.

Gill called attention to the importance of deepening local currency capital markets, arguing that increasing household savings in Turkish lira is vital for strengthening Turkey’s financial ecosystem and reducing structural vulnerabilities.