Şimşek: “Our Cash Reserves Are Strong; We Have the Capacity to Manage Even Without Accessing International Markets”

Following the Economic Coordination Council (EKK) meeting held in Giresun, Treasury and Finance Minister Mehmet Şimşek answered questions from journalists alongside the other members of the Council. In his remarks, Şimşek underlined the strength of Turkey’s cash reserves and stated that the country has the capacity to manage its finances effectively even without resorting to international borrowing markets. He emphasized that the current economic program is not dependent on portfolio investments, and therefore, recent outflows in this area are not of major concern.

“It’s Too Early to Assess the Long-Term Effects”

Şimşek remarked that it is still too early to analyze the permanent effects of both domestic and global developments on the targets of Turkey’s economic program. He acknowledged that ongoing fluctuations have both positive and negative effects on inflation, but when considering the net impact, he expressed confidence that inflation will remain within the Central Bank’s forecast range.

Addressing concerns about rising inflation expectations, Şimşek stated that the tightening of financial conditions would help suppress demand-driven inflationary pressures. “Most importantly,” he noted, “there has been a substantial decline in commodity prices, particularly oil. If prices remain at these levels, it will have a disinflationary impact.” He added that the recent depreciation in the Turkish lira has been limited and that due to relatively weak demand conditions, the exchange rate pass-through effect is expected to remain low. “When we evaluate all these factors, the probability of inflation staying within the Central Bank’s forecast band is extremely high,” Şimşek said.

“Current Account Outlook Remains Positive”

Şimşek also commented on the outlook for the current account balance. He stated that the net effect of recent developments is expected to be positive. Although he acknowledged that economic weakness in the European Union could adversely affect exports, he also pointed out that tighter domestic financial conditions would likely lead to reduced imports.

He noted that the current account deficit is expected to come in well below the projections made in the Medium-Term Program (MTP), thanks to these offsetting effects.

“Budget Discipline Will Remain Strong”

Şimşek emphasized that the government will maintain a strong stance on expenditure discipline within the budget. He acknowledged that if tighter financial conditions result in a more moderate pace of growth, there could be downside risks to revenue collection. However, he stressed that this would not be a major concern for the economic program. “The impact of tight financial conditions on revenues is expected to be limited, and our program can comfortably accommodate this,” he said.

“We Have No Concerns About Growth”

Şimşek also touched on growth dynamics, recalling that in 2023, there had already been a shift toward rebalancing growth, and that this goal was achieved in 2024. He reiterated that the main objective of the government’s economic program is to lay the groundwork for sustainable and inclusive growth. “We have no concerns about growth in this context,” he said.

“Outflow in Portfolio Investments is Temporary”

Regarding the decline in portfolio investments, Şimşek underlined that this is a temporary phenomenon and not unique to Turkey. “When internal or external shocks occur, investors may move away from portfolio assets,” he explained. “This is not a reflection of declining credibility. Rather, it’s driven by a global decline in risk appetite, causing investors to shift to cash or low-risk instruments.”

He stressed that Turkey’s economic program is not dependent on short-term portfolio inflows. “Our focus is on long-term, sustainable gains. Turkey is an open-market economy with a liberal capital account, and it is normal to experience money inflows and outflows within this framework,” Şimşek stated. “We believe that once global market volatility subsides, Turkey will remain an attractive destination with a strong narrative.”

He also emphasized that international direct investments would not be influenced by short-term fluctuations. “With price stability, a sustainable current account, and structural transformation, we expect direct investments to increase steadily,” he said.

“Growth is Driven by Consumption and Investment”

Şimşek noted that Turkey’s growth is predominantly driven by domestic demand, particularly consumption and investment, which makes it relatively less vulnerable to external shocks compared to peer economies. He highlighted the resilience of exports, stating that 62 percent of Turkish exports are directed to countries with which Turkey has free trade agreements, giving Turkish exporters a significant competitive advantage.

“Bond Pricing Has Started to Improve”

Touching on the financial markets, Şimşek said that the impact of recent developments on the Turkish economy has been relatively limited. He observed that pricing in both the domestic market for lira-denominated bonds and in international bond markets has begun to improve. “Interest rates have started to decline,” he noted. “We are seeing renewed inflows of external financing into Turkey, and the current pricing dynamics reflect this shift.”

“We Can Manage Even Without Going to International Markets”

Şimşek emphasized that Turkey’s Treasury has a long-standing and effective debt management strategy. “We always maintain strong cash reserves for both domestic and international debt payments,” he stated. “Even if we do not borrow from international markets in the short term, we have sufficient capacity to manage our obligations. This is because we take a cautious and proactive approach to debt management, giving us flexibility to handle temporary market volatility.”

He further stated that the country’s financing program is built around strategic criteria, such as reducing exposure to foreign exchange and interest rate risks, while maintaining high liquidity buffers. “This strategy gives us room to maneuver during turbulent times,” he said.

“Our Strategy Is to Reduce FX Borrowing in Domestic Markets”

Şimşek explained that foreign currency borrowing from the domestic market was always a part of the broader financing strategy but added that the current strategy is to reduce its share over time. “We continue to monitor market conditions closely and borrow with variable rates or shorter maturities as needed,” he said. “We will adapt our actions to align with evolving market conditions.”

He also provided data on the domestic debt rollover ratio, stating that it is projected to be 119.3 percent for the year. He explained that this figure was higher in the first 3.5 months of the year due to seasonal variations in tax revenue collection. “Most of our tax declarations are not filed within the first four months, so this is expected,” he added.

“Slight Rise in the Yield Curve, But Normalization Expected”

Şimşek reported that the Treasury had projected $11 billion in foreign borrowing for 2024, and that $2.5 billion had already been secured in the first quarter. He noted that the yield curve for Turkish bonds in international markets has increased by 40–50 basis points. “The interest rate on our 10-year dollar-denominated bonds has risen to around 7.70 percent, after briefly exceeding 8 percent,” he said. “We expect this to normalize further in line with a decline in our Credit Default Swaps (CDS).”

He reiterated that the decline in portfolio inflows is not a credibility issue, but a reflection of the broader decline in global risk appetite. “This is consistent with what we’re seeing worldwide. When risk perception rises, investors move to safer assets. We believe this is a short-term situation, and pricing already reflects that.”

“We Will Meet with US Investors Seeking to Shift Supply Chains to Turkey”

Şimşek concluded by sharing details of his upcoming visit to the United States, where he will attend meetings of the IMF, World Bank, and G20. As part of this trip, he will also meet with credit rating agencies in New York and hold discussions with major US-based direct investors.

“We will also engage with representatives of US companies in the real sector, especially those considering relocating their supply chains to Turkey,” he said. “In addition to these official meetings, we will participate in 14 to 17 bilateral meetings daily, some organized by investment banks.”

“In all of these meetings, we will emphasize that there has been no deviation from our economic program and that it continues with full political backing.”