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Turkey’s Treasury Faces Mounting Pressure From High Domestic Debt Rollovers

domestic debt

Large debt repayments and expanding deficits are driving up domestic borrowing needs through April 2026.

Turkey’s Treasury is facing intensifying pressure on its borrowing program as rising debt repayments—both domestic and external—require aggressive bond issuance in the months ahead. According to Gedik Invest, more than TRY 3.15 trillion in domestic debt is scheduled to mature between May 2025 and April 2026, alongside an increasing external debt service burden. This dynamic is pushing the Treasury’s domestic borrowing requirement to record levels.

Treasury’s June–August Strategy: Rollover Above 100%

At the end of May, the Treasury released its financing plan for June–August 2025.
Key points include:

  • Domestic debt repayments in June: TRY 266 billion

  • External debt repayments: TRY 55 billion (equivalent in TRY)

  • Planned domestic borrowing via eight auctions: TRY 279 billion

  • Implied domestic debt rollover ratio: 105%

For the full three-month period, the Treasury is scheduled to repay TRY 919 billion in domestic debt—split between TRY 447 billion in principal and TRY 472 billion in interest. External repayments are projected at approximately TRY 136 billion (in TRY terms). In response, the Treasury plans to borrow around TRY 1 trillion, bringing the average rollover ratio to 111%. This implies net domestic borrowing of TRY 577 billion for the quarter.

Budget Deficit Driving Record Borrowing

From January to May 2025, the Treasury repaid TRY 899 billion in domestic debt, while domestic borrowing reached TRY 1.26 trillion—about TRY 70 billion more than originally projected. This resulted in a domestic debt rollover ratio of 140%.

The primary driver of this increased borrowing is the persistently high cash-based budget deficit:

  • Cash deficit (Jan–Apr): TRY 1.07 trillion

  • Cash-based primary deficit: TRY 401 billion

Domestic Borrowing Used to Finance External Debt

During the first five months of 2025, the Treasury repaid around USD 10 billion in external debt but issued only USD 4.5 billion in Eurobonds. This mismatch suggests that part of the domestic borrowing is being used to fund foreign debt obligations, raising concerns about long-term sustainability.

Forward Outlook: TRY 4 Trillion in Borrowing Needed by April 2026

Looking ahead through April 2026, Gedik Invest projects:

  • Domestic debt repayments: TRY 3.15 trillion (likely to be exceeded due to short-term bond issuances)

  • External debt repayments: USD 19.5 billion

  • Total domestic borrowing requirement: TRY 4.0 trillion or more

  • Monthly average borrowing requirement: TRY 350–360 billion

  • Rollover ratio potentially exceeding 130%

These figures point to an extraordinary reliance on domestic markets to manage both internal and external debt service obligations.

Impact of Inflation and Rate Expectations on Debt Costs

While inflation is currently on a downward path and there is market anticipation of rate cuts, the high volume of required borrowing could limit any decline in bond yields—especially if inflation expectations deteriorate.

As of June 2, 2025, the Turkish Lira Overnight Reference Rate (TLREF) stands at 48.99%. With foreign exchange reserves stabilizing, a resumption of rate cuts by the CBRT appears more likely. However, Gedik notes that short-term interest rates will likely remain well above levels anticipated earlier in the year.

Importantly, even if TLREF-linked rates decline, coupon payments on TLREF-indexed bonds will continue to reflect the average rate for the relevant period, ensuring continued high returns for investors in the near term.

TLREF-Linked Bonds: Opportunities Amid Uncertainty

Gedik Invest highlights several government bonds indexed to TLREF as strong options under current market conditions:

  • TRT190826T19: Best suited for investors seeking short-term liquidity and high, regular coupon income

  • TRT160627T13: A balanced medium-term bond, offering both trading potential and strong yields

  • TRT061228T16: Ideal for long-term investors seeking stable returns and protection against interest rate volatility

These instruments offer attractive alternatives for those navigating a period of high borrowing, volatile rates, and shifting monetary policy expectations.

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