Türkiye Ramps Up Borrowing as Budget Deficit and Interest Costs Climb

Türkiye faces a demanding summer of debt financing, as it works to roll over maturing bonds and issue new securities to bridge a widening budget deficit. The effort comes amid persistently high interest rates and stubborn inflation, compounding pressure on the country’s public finances.
On Tuesday, the Ministry of Treasury and Finance conducted three separate lira-denominated auctions, raising a total of $2.5 billion. These included a seven-year floating rate note, a nine-month treasury bill, and a four-year fixed coupon bond. All three drew strong interest from both private investors and state institutions, lured by high returns.
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The seven-year note offered a 34.85% yield
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The other two instruments yielded just over 45% each
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All auctions were oversubscribed
This marks the latest step in an accelerated borrowing schedule. In May, Türkiye’s treasury issued €2 billion in euro-denominated bonds, which were oversubscribed 2.5 times.
High Borrowing Targets Through the Summer
Between June and August, Türkiye is expected to redeem $23.4 billion in domestic debt and borrow $26.1 billion, according to official ministry figures. Eight additional bond auctions are scheduled in June alone, reflecting the urgency of the government’s financing needs.
“The budget deficit has widened beyond expectations,” said Iris Cibre, a financial markets executive, in an interview with AGBI. “The core reason is the dramatic increase in interest payments, not public expenditure itself, which has grown in line with inflation.”
Türkiye’s one-week repo rate remains at 46%, despite May inflation easing slightly to 35.4%, according to the central bank.
Most Borrowing Covers Interest, Not Principal
Data from the Treasury Ministry reveals that almost 75% of domestic debt repayments in Q1 2025 were used exclusively for interest payments. Only 25% went toward repaying principal, a sharp increase from 2024, when 57% was used for interest, and a stark contrast to 2021, when the figure was just 28%.
While market expectations suggest that the central bank could cut the policy rate later this month or in July, the government remains locked into high-cost borrowing, especially on earlier-issued debt.
With tax revenues underperforming, particularly in corporate and income tax, Türkiye’s reliance on borrowing to cover interest and maintain liquidity has become more pronounced.