Türkiye Faces Record Domestic Debt Interest Burden as Interest Payments Soar to 75% in Q1 2025

Türkiye is grappling with an unprecedented surge in the cost of servicing domestic debt, as new data reveals that nearly 75% of the government’s internal debt payments in Q1 2025 went toward interest alone. In effect, three out of every four lira paid by the Treasury in the first quarter was for interest expenses, not principal.

This marks a historic peak in the burden of interest on domestic borrowing, underscoring the long-term fiscal cost of past economic policies and the challenges of current monetary tightening.

Interest Costs Eclipse Principal Repayments

According to data from the Ministry of Treasury and Finance, Türkiye paid 117 billion TL in principal and a staggering 346.4 billion TL in interest between January and March 2025. This puts the interest-to-principal ratio at nearly 3:1, reflecting an alarming imbalance in debt servicing.

While interest accounted for 57.3% of domestic debt servicing in 2024, it has now surged to 74.7% in just the first quarter of 2025—the highest on record.

The Legacy of Erdoğan’s Low-Interest Doctrine

The mounting debt burden is widely seen as a consequence of the economic approach pursued since Türkiye’s 2018 shift to a presidential system. President Recep Tayyip Erdoğan famously declared that “interest is the cause, inflation is the result”, launching a low-interest policy that eroded the Central Bank’s independence and resulted in frequent leadership changes.

During Şahap Kavcıoğlu’s term, interest rates were aggressively slashed, prompting a currency crisis and a surge in inflation.

From Heterodoxy to High-Interest Rationalization

A significant policy shift began in 2023, when economist Mehmet Şimşek took the helm of the Finance Ministry. Under the banner of “rationalization,” the Central Bank raised its policy rate to 46%, aiming to stabilize the lira and rein in inflation.

However, this tighter monetary policy came with a cost to public finances. As borrowing costs soared, so did the Treasury’s debt servicing obligations—particularly interest payments.

Historical Trends: From 28% to 75% in Five Years

The weight of interest in domestic debt has fluctuated sharply over the years:

• 2017: Over 40%

• 2020–2021: Declined to 31% and 28.4%, respectively

• 2022: Rose again to 42.6%

• 2023: Climbed to 48.3%

• 2024: Hit 57.3%

• 2025 Q1: Surged to 74.7%

This sharp upward trend illustrates the cumulative effects of past interest rate suppression followed by aggressive tightening.

Foreign Debt: Moderate Relief, Lingering Risks

While domestic borrowing pressures intensify, external debt servicing appears relatively more stable. In 2023, interest accounted for 46.5% of foreign debt payments, mirroring the 2013 level.

However, due to limited borrowing capacity and slower issuance since 2020, foreign debt burdens have eased slightly:

• 2024: Interest made up 39.8% of external debt servicing

• 2025 Q1: Dropped to 26.9%

• 2025 year-end projection: 35.7% of external servicing costs will be interest

• Interest-to-principal ratio: Projected at 55.6% by year-end

The Fiscal Price of Past Economic Choices

Türkiye is now paying the price of its post-2018 economic trajectory. The unorthodox monetary policies, anchored by Erdoğan’s anti-interest ideology, triggered inflation, devalued the currency, and ultimately led to an unsustainable debt structure.

Ironically, the new “rationalization” efforts meant to restore market confidence have resulted in record-high interest rates, which in turn have ballooned the state’s debt servicing costs.

Unless borrowing costs are brought under control or revenues significantly increase, Türkiye’s fiscal space will remain highly constrained, with public funds increasingly diverted to cover interest payments.