AGBİ:  Turkey’s Economic Team Faces Scrutiny — But No Turning Back

Two Years In, Şimşek’s Path Faces Political and Policy Crosswinds

Nearly two years after Finance Minister Mehmet Şimşek took the reins of Turkey’s economic policy, the country finds itself at a critical juncture. While some praise the shift toward orthodox policy, others argue that the reforms have either fallen short or gone too far.

Şimşek’s return to the government in June 2023 was widely seen as a reset — a departure from President Recep Tayyip Erdoğan’s unorthodox theory that high interest rates fuel inflation. At the time, Turkey’s central bank interest rate stood at 8.5%, inflation had climbed to 38%, and GDP growth was at 4.5%.

Fast forward to mid-2025, the central bank’s key rate is now 46%, growth has slowed to 2% in Q1, and inflation in May dropped marginally to 35.4%, according to official figures released this week.

Diverging Views on Şimşek’s Track Record

Şimşek, a former deputy prime minister and respected investment banker, insists that the current course is working. In a post following the latest CPI data, he wrote that Turkey is “on track for a rebound,” noting that disinflation, greater predictability, improved financing, and increased productivity will support long-term, sustainable growth.

But criticism is mounting — and not just from opposition voices. Even some pro-government media outlets have recently echoed calls for a return to looser monetary policy and faster growth, as seen under Şimşek’s predecessor and Erdoğan’s son-in-law, Berat Albayrak.

Investor Confidence Shaken by Political Shockwaves

Adding to the uncertainty are recent political developments. In March, Istanbul Mayor Ekrem İmamoğlu — a popular opposition figure and considered the frontrunner for the 2028 presidential election — was arrested on corruption charges. The arrest spooked investors, triggered a stock market drop, weakened the lira, and led to a reversal in interest rate policy by the central bank.

Analyst Timothy Ash offered a more upbeat assessment of the past two years, praising Şimşek and the central bank for rebuilding foreign exchange reserves and restoring investor confidence.

“They’ve done a much better job than anyone expected,” Ash told AGBI. “Yes, confidence faltered after the İmamoğlu arrest, but with the recent rate hike and clear hawkish messaging, foreign investors are returning, and reserves are building again.”

Internal Challenges Loom Larger Than Opposition

Yet perhaps the greatest challenge for Şimşek isn’t coming from the opposition, but from within the ruling AK Party itself. Burak Arzova, economist at Marmara University, argues that internal hesitancy is undermining the economic team’s credibility.

“Stabilizing the economy and reducing inflation is the government’s responsibility,” Arzova noted. “But two years on, it’s difficult to see full political support behind the program.”

He added that relying on monetary tightening alone has proven insufficient, especially in light of the political disruption sparked by İmamoğlu’s arrest on March 19.

No Exit Ramp for Erdoğan — or for Şimşek

Despite political friction and policy pushback, observers agree that Şimşek’s job appears secure — for now. “There is no alternative,” says Ash. “If Erdoğan tried to remove Şimşek and return to unorthodox economics, a systemic crisis would likely follow quickly.”

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While debate continues over the pace and structure of Turkey’s economic reform path, the direction — at least for now — appears set. Investors may question the speed of progress, but few doubt that reversing course could prove far more destabilizing than the status quo.

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