When Interest Exceeds Principal: The Alarm Bells for Türkiye’s Debt Architecture

In the theater of Turkish economic debate, the spotlight is frequently fixed on the sheer “size” of the debt. Headlines often scream about trillions of Liras or hundreds of billions of Dollars. However, focusing solely on the volume of debt is a fundamental diagnostic error. The real risk lies in the architecture of that debt: its currency composition, its maturity profile, and—most alarmingly—a newly crossed threshold where interest payments have begun to eclipse the principal itself.

This is not merely a technical accounting quirk. It is a systemic warning shot. When a nation’s debt generates more in interest costs than the value of the original loan, it indicates a broken dynamic. It signals that the economy is no longer borrowing to grow, but borrowing simply to exist.

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The Great Crossover: 2022 and Beyond

Since January 2022, Türkiye has crossed a quiet but critical rubicon. For the first time in recent history, interest obligations moved above principal payments. While there was a brief narrowing of this gap toward early 2025, the trend has since solidified.

By December 2025, the total debt service required—even if not a single penny of new debt were acquired—reached approximately 16.5 trillion TL. Of this, 7.9 trillion TL was principal, while a staggering 8.6 trillion TL was interest. To put this into perspective, just 13 years ago in 2012, interest payments were roughly half the size of principal payments. Today, the “cost” of the money has become more significant than the money itself.

A Tale of Three Tiers: Public, Private, and External

To understand why this is happening, one must look past the headline GDP ratios.

1. Public Debt: The “Low Ratio” Illusion

On paper, Türkiye’s central government debt stock—around 13.5–14 trillion TL—looks manageable. At roughly 24-25% of GDP, it is significantly lower than that of the US, France, or Japan. However, this “low” ratio is deceptive. Unlike the US or Japan, Türkiye’s public debt is deeply intertwined with foreign currency (FX) and gold-indexed liabilities. This makes the debt highly sensitive to exchange rate shocks. The issue isn’t the amount of debt, but its vulnerability to a volatile Lira.

2. External Debt: The Achilles’ Heel

Total gross external debt has climbed above $560 billion. The most pressing concern is the $160 billion that must be rolled over within the next 12 months. This short-term external debt is the primary driver of currency instability; any deterioration in global risk appetite makes this debt more expensive, triggering a vicious cycle of Lira depreciation and rising costs.

3. Private Sector: The Invisible Burden

While public debt is low, private sector debt sits at approximately 28-30% of GDP. Most of this is denominated in foreign currency, held by companies whose revenues are in Liras. This creates a massive “mismatch” that leaves the backbone of the Turkish economy exposed to every fluctuation in the Dollar or Euro.

Why Global Peers Can Carry More Debt

A common rebuttal to these concerns is to point at countries like Japan. But the comparison fails when we look at debt quality:

• Japan: Debt exceeds 250% of GDP, yet interest rates are near zero. Why? Because the debt is in Yen, held by domestic investors, and backed by a trusted central bank. There is no currency risk.

• Germany: Borrows at negative real rates despite higher debt ratios than Türkiye. Why? Because the debt is in Euros, fiscal rules are ironclad, and institutions are independent. Markets apply a “trust premium” rather than a risk premium.

• South Korea: After the 1997 Asian Crisis, Seoul made a conscious pivot. They reduced FX debt, moved toward long-term Lira-denominated borrowing, and prioritized central bank credibility. Today, they borrow at a fraction of the cost Türkiye faces.

Conclusion: Interest is the Symptom, Trust is the Cause

Türkiye’s fundamental problem is not being “too deep in debt.” It is the quality of that debt. The reliance on short-term, FX-indexed loans with high-interest rates creates a ceiling on growth. Until this architecture changes, interest rates will remain high. High rates stifle investment; lack of investment kills production; and low production ensures that unemployment and inflation remain structural features of the economy.

If debt management transitions from a technical exercise into an emergency where political concessions are needed to avoid currency shocks, it ceases to be an economic issue and becomes a matter of national sovereignty.

Interest is a result; the cause is a lack of institutional trust. To lower interest rates, Türkiye does not need to simply “cut” them—it needs to build the conditions that make them low: longer maturities, Lira-denominated borrowing, and a return to institutional predictability. The alarm is ringing; ignoring it will only make the eventual settlement more painful for the average citizen.

By Mehmet Ogutcu, FORBES Türkiye