Turkey sees 2025 budget deficit/GDP ratio at 3.6%; saw 3.1%

Turkey sees 2025 budget deficit/GDP ratio at 3.6%; saw 3.1%

Turkey's fiscal landscape in 2025 has shown mixed signals, with a notable improvement in the budget deficit/GDP ratio but persistent challenges in currency volatility and inflation. As of September 2025, the Turkish economy reported a budget deficit/GDP ratio of 3.6%, down from 3.1% in 2024 [1]. This reduction, while significant, is accompanied by a backdrop of fiscal fragility and currency instability.

The central government's fiscal deficit for the first half of 2025 reached $24.3 billion, a substantial increase driven by a 44% surge in spending despite a 46% growth in tax revenues [1]. Interest payments alone consumed 17% of total expenditures, highlighting the government's vulnerability to debt servicing costs. The debt-to-GDP ratio is projected to reach 25.3% by year-end, a level that could strain fiscal flexibility amid global economic uncertainties [2].

Currency volatility remains a critical risk for foreign investors. The Turkish lira depreciated 17.29% against the U.S. dollar by September 2025, exacerbating inflationary pressures [1]. Annual inflation stood at 33.5%, down from 61.8% in July 2024 but still far above the Central Bank of the Republic of Türkiye’s (CBRT) 24% target for 2025 [2]. The CBRT's rate cut in July 2025 aimed at stabilizing prices, but the lira's exchange rate hit 41.17 by September 3, 2025, reflecting ongoing currency depreciation.

Despite these fiscal and currency challenges, Turkey's export sector has shown remarkable resilience. Q2 GDP growth reached 4.8% year-on-year, driven by construction and IT sectors, while exports hit a historic $25 billion in July, a 11% increase from 2024 [5]. Key industries like automotive and chemicals have led the charge, with the former contributing $3.8 billion in July exports [2]. However, external headwinds, such as U.S. tariffs and geopolitical tensions, pose significant risks to Turkey's export-driven model.

For long-term investors, navigating Turkey's complex economic terrain requires a diversified approach. Balancing exposure to resilient sectors like automotive and construction with hedging against currency risks may be the most prudent strategy. The CBRT's disinflationary path and the government's fiscal consolidation efforts provide some optimism, but these measures must be sustained to restore investor confidence.

References:
[1] https://www.ainvest.com/news/turkey-fiscal-challenges-currency-risks-2025-assessing-long-term-investment-risks-government-debt-export-dependent-sectors-2509/
[2] https://tradingeconomics.com/turkey/gdp-growth-annual
[3] https://www.dailysabah.com/business/economy/turkish-central-bank-introduces-new-interim-inflation-targets
[4] https://www.paturkey.com/news/2025/22087-22087/
[5] https://www.agbi.com/economy/2025/09/turkey-beats-expectations-with-second-quarter-q2-gdp-growth/