Türkiye’s Primary Balance Strengthens Despite Rising Interest Costs
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Budget deficit widens to TL310 billion in September, but nine-month data show a strong primary surplus
The Turkish central government budget posted a TL310 billion deficit in September 2025, expanding the 12-month rolling shortfall from TL2.04 trillion to TL2.25 trillion. The primary balance, which excludes interest payments, recorded a TL73 billion deficit in the same month. A year earlier, the budget had shown a TL100.5 billion deficit and a TL48.2 billion primary surplus.
However, since a large portion of corporate and income tax revenues shifted from August to September last year, a combined assessment of the two months provides a clearer picture. For the August–September period, the data indicate a TL212.9 billion total deficit and a TL203.4 billion primary surplus, compared with TL230.1 billion and TL15.7 billion in the same period of 2024—showing a marked improvement in the underlying fiscal trend.
Real tax revenue up 17%, primary balance improves sharply
During this period, real tax revenues rose by nearly 17%, while real growth in non-interest expenditures remained limited to about 5%, driving the improvement in the primary balance. The 12-month rolling budget deficit rose from TL2.04 trillion to TL2.25 trillion, while the primary deficit increased from TL108 billion to TL229 billion. For comparison, at end-2024 these figures stood at TL2.11 trillion and TL836 billion, respectively.
Strong turnaround in the primary balance in January–September
In the first nine months of 2025, non-interest expenditures rose 37% year-on-year in nominal terms, translating into only 0.7% real growth. Tax revenues, meanwhile, increased 51% year-on-year (11% in real terms). Total revenues rose 48% nominally and 9% in real terms.
A key driver of this strong performance was a 93% year-on-year increase in personal income tax receipts, reflecting higher withholding taxes on deposits and mutual funds. The July 9 tax-withholding hike from 15% to 17.5% is expected to contribute roughly TL80 billion to the budget in the second half of the year.
As a result, the primary balance swung from a TL161 billion deficit in the first nine months of 2024 to a TL445 billion surplus in the same period of 2025. However, the headline budget deficit widened from TL1.07 trillion to TL1.22 trillion due to rising interest payments.
Interest costs limit headline improvement
Despite substantial progress on the primary side, interest expenditures continue to weigh heavily on the overall deficit. Payments surged from TL913 billion in the first nine months of last year to TL1.67 trillion this year—an 82% increase.
While tax revenues have grown significantly in recent years, the faster rise in debt-service costs has pushed the ratio of interest payments to tax revenues higher, eroding fiscal space and contributing to the deterioration in the headline deficit. The Medium-Term Program (MTP) for 2026–2028, published in early September, revised the government’s projections upward, lifting estimated interest expenditures from TL1.95 trillion to TL2.05 trillion for 2025 and from TL2.28 trillion to TL2.74 trillion for 2026.
Full-year deficit expected at 3.6% of GDP
The latest MTP also revised the 2025 year-end budget deficit projection upward from TL1.9 trillion (3.1% of GDP) to TL2.2 trillion (3.6% of GDP), broadly in line with market forecasts. For 2026, the deficit-to-GDP ratio was raised from 2.8% to 3.5%.
Despite these revisions, the outlook still signals gradual fiscal consolidation compared with deficit ratios of 5.1% in 2023 and 4.7% in 2024. The government’s forecast of a 28% increase in tax revenues for 2026, well above its 19.7% deflator assumption, suggests the possibility of additional tax measures or a partial rollback of inflation accounting in the coming year.
Meanwhile, the divergence between accrual-based and cash-based budget data—largely stemming from the delayed use of earthquake-related allocations—is expected to persist over the coming months.
