Turkey to boost borrowing to bridge budget gap

• Debt offerings to raise $13bn
• Domestic and international markets
• Diversity to counter instability

Turkey’s Treasury has issued its borrowing programme for 2025, seeking to build a bridge over the budget deficit through a mix of domestic and external debt offerings, though any instability in global markets could add to financing costs. 

Under the programme, the government will seek to raise the equivalent of up to $13 billion from international markets through a mix of products and maturities, including dollar and Eurobonds, green bonds and lease certificates, the Treasury said. 

With an eye on potential instability in the money markets in the coming year, the Treasury also said there would be greater diversity in its international borrowing activities, and offerings “in foreign currencies other than USD may be conducted depending on the market conditions”.

In March, Ankara staged its first Euro-denominated bond issuance in more than three years, selling €2 billion ($2.15 billion) in papers, after having mainly focused on dollar issuances since 2021.

As of the end of October, the Treasury had raised the equivalent of $10.5 billion in external borrowing. 

External loans and bonds will only be a small part of the state’s wider borrowing programme, with the Treasury aiming to access TL2.85 trillion (roughly $83 billion) from the domestic market.

This compares to the TL2.6 trillion deficit in the draft budget for 2025, submitted to parliament at the end of October. 

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The fact that borrowing will provide full coverage for the budget deficit is a key take out from the financing programme, according to Çoşkun Cangöz, director of fiscal and monetary studies of the Ankara-based Turkey Economic and Political Research Foundation.

“The financing figure is parallel to the budget deficit,’ he tells AGBI. “This is positive, indeed, and is as it should be done.”

Cangöz warns however that one risk to the programme was fluctuations in exchange rates in the coming year. 

“If we have any upwards movement in foreign currency, it will mean that the interest rate burden will be further strained.”

Political headwinds

Economist Mustafa Sönmez is also wary of economic and political instability, especially in the wake of the US presidential election. 

“With a Trump victory geopolitical and economic risks in our region will increase and place a strain on Turkey’s finding external resources,” he says.

“The growing ambiguity will make controlling inflation more difficult and some foreign currency attacks can be expected.”

Turkey has benefitted recently from a period of stability and improved economic outcomes, in particular cooling of inflation. As a result, the country’s sovereign ratings have been upwardly revised, most recently by S&P which raised its assessment from B+ to BB- on November 1.

However, these upgrades have already been factored in by the markets, says Cangöz, so will not be reflected on borrowing costs for the new programme. 

“We are not expecting a significant change as Turkey has already been rated as stable,” he says. “But if ratings improve in the future, say if Turkey’s outlook is rated positive, it would decrease the burden on borrowing and will have a positive impact.”

Inversely, with increased uncertainty in the immediate future, it may be some time before a ratings agency lifts its head over the parapet and signals the all-clear for a further upgrade and an easing of Turkey’s borrowing costs.