Türkiye prioritizes macro-financial stability and a tight fiscal policy to cushion the impact of global headwinds, which have been observed recently, particularly due to wars and higher energy prices, Treasury and Finance Minister Mehmet Şimşek said on Thursday.

Addressing the opening of Istanbul Economic Forum, Şimşek said that the government maintained a tight fiscal policy to cushion the impact of shocks and prioritize macro-financial stability.

The Central Bank of the Republic of Türkiye (CBRT) organized the two-day forum to address global economic policy challenges by bringing together central bank governors and senior policymakers from around the world, including the U.S. and the U.K.

Şimşek noted that global structural headwinds included conflicts, trade protectionism, high indebtedness, unfavorable demographics, impending climate disasters and artificial intelligence.

He also underscored that while Türkiye is focusing on promoting peace, and despite living in the immediate neighborhood of the countries in conflict, the country plans to increase defense spending by 229% in the 2027 budget, against the central bank’s 21% inflation target for next year, to build deterrence.

He also said that the value of research and development (R&D) in defense projects exceeded $100 billion, with around 1,400 defense products and projects, moving the country toward becoming a top 10 exporter.

He said Türkiye ranked among the top three globally for official development assistance and diplomatic footprint.

Turkish Airlines flew to the most destinations compared with other carriers, he recalled.

He also said the government invested in an $8 billion railway project crossing the Bosphorus in Istanbul to connect Beijing to London.

The country also encouraged its neighbors to invest in additional corridors, such as the new development road, to improve connectivity and resilience.

The minister also pointed out that the nation invested in natural gas and oil pipelines to ensure the availability of energy supplies.

The nation boosted the share of renewables in electricity generation to almost 60% and set an ambitious 35% electrification target, up from 23%, as the COP31 host.

FTAs role

The government responded to global trade protectionism by expanding free trade agreements, holding 54 pacts, with three pending and ongoing negotiations with Japan, Indonesia, the Gulf Cooperation Council (GCC) and Canada.

He pointed out that tourism revenue jumped ninefold over the past quarter-century, placing Türkiye among the top five global tourist destinations.

Şimşek also mentioned that the country had over 50 internationally accredited healthcare facilities and attracted medical tourists for cosmetic treatments.

He said the nation became the world’s third-largest exporter of soap operas and ranked second to London in the gaming ecosystem for startups and unicorns.

The country ranked second to China in the global league of contractors and hoped to aid in regional reconstruction, which required at least $1 trillion over the next decade.

Moreover, Şimşek noted that the nation hosted the sixth-largest number of international students at its universities.

Relatively low debt levels

He underscored that total indebtedness remained at 91%, compared with a 230% average for emerging market peers, while public debt to GDP stood at 22%.

The government targeted a 3.1% deficit this year, keeping it well below the 5.8% average for global emerging markets, and reduced current expenditures from 4.6% of the budget to 2.9%.

The administration sought to strengthen its fiscal position by investing in public procurement, state-owned enterprise governance and tax reforms.

Şimşek said the working-age population would continue to grow over the next decade and the administration planned reforms to boost women’s low labor force participation rate.

He said the country invested in 5G+ technology, expanded fiber capacity and planned nuclear power plants, including small modular reactors (SMRs), to power AI.

The government also helped small and medium-sized enterprises boost productivity to capitalize on the positive potential of AI.

The administration invested in irrigation and climate-resilient agriculture to combat global warming.

Şimşek remarked that the country frequently tested its ability to recover quickly from difficulties and adapted its policies despite challenges in a tough neighborhood.

Price stability

He underscored that delivering price stability remained the primary goal of the medium-term economic program while maintaining fiscal discipline.

The minister added that external imbalances remained manageable even though they deteriorated this year because of the war.

He highlighted that real convergence continued as the economy grew slightly more than 3%, outpacing the 1.5% growth of trading partners, while historical growth over the last 25 years stood closer to 5.5%.

Şimşek noted that the central bank utilized quantitative and selective credit-tightening tools while the government was adjusting its fiscal policy to make support more selective and targeted.

He concluded that recent stress in the asset management sector remained contained and the country maintained plenty of policy space to respond in a shock-prone world.

Touching on the country’s disinflation process, the minister said the process had largely stalled this year because of the war, “but we’re not giving up.”

“This year’s deficit would have been actually closer to two and a half percent, had we not deployed fiscal space to cushion or to, to slow the pass-through from crudes to final products,” he added.

The Daily Sabah Newsletter

Keep up to date with what’s happening in Turkey,
it’s region and the world.

SIGN ME UP

You can unsubscribe at any time. By signing up you are agreeing to our Terms of Use and Privacy Policy.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Most U.S. Federal Reserve policymakers expect another interest rate hike by the end of the year as stubborn inflation and elevated energy prices continue to complicate the central bank’s efforts to bring price pressures under control, minutes released Wednesday showed.

The Federal Open Market Committee (FOMC) voted unanimously at its September meeting to raise its benchmark interest rate by 25 basis points to a range of 3.75% to 4%.

U.S. households and businesses have faced years of elevated prices since the COVID-19 pandemic, while inflation has remained above the Fed’s long-term 2% target for more than five years.

“With regard to the outlook for monetary policy beyond the current meeting, most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year end,” the minutes said.

Several policymakers said they believed the previous policy rate had not been sufficiently restrictive to curb economic activity.

The Fed has a dual mandate to maintain price stability while supporting maximum employment.

The U.S. unemployment rate has remained relatively stable over the past year despite fluctuations in job growth, partly reflecting demographic shifts and lower immigration.

“Almost all participants assessed that, while inflation risks were tilted to the upside, risks to the labor market had diminished and were now broadly balanced,” the minutes said.

Inflation measured by the Personal Consumption Expenditures (PCE) price index, the Fed’s preferred gauge, peaked at 7.2% in June 2022 before declining.

It fell to 2.2% in September 2024 before accelerating again, partly amid the Trump administration’s tariffs on U.S. imports and other economic policy changes.

Energy prices have risen further since the outbreak of the U.S.-Iran war in February, as Iranian retaliation disrupted energy markets.

PCE inflation reached 3.8% in May, its highest level in three years, before easing to 3.4% in August, the latest month for which data is available.

Policymakers said recent progress in bringing inflation down had been insufficient.

They noted that geopolitical developments had driven up crude oil and refined fuel prices, while a surge in artificial intelligence-related investment was also contributing to inflationary pressures.

Officials also warned that the longer energy prices remain elevated, the greater the risk that rising costs in individual sectors could spread into broader price pressures.

The Daily Sabah Newsletter

Keep up to date with what’s happening in Turkey,
it’s region and the world.

SIGN ME UP

You can unsubscribe at any time. By signing up you are agreeing to our Terms of Use and Privacy Policy.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Türkiye set out Wednesday a detailed plan to repay nearly half a million investors who have been caught up in the liquidation of more than 130 investment funds.

The first payments are due on Thursday, according to Vice President Cevdet Yılmaz, who told Parliament on Thursday the plan would be funded from the funds’ own assets and not from public money.

Here is how the process is expected to work.

Why are funds being liquidated?

Turkish authorities launched a sweeping investigation and market intervention last month after suspected price manipulation in a number of thinly traded stocks triggered heavy losses and redemption pressures at investment funds.

Capital Markets Board (SPK) halted trading in funds run by seven management companies on Sept. 17 and ordered the funds wound down. Authorities have also detained or ordered the detention of top executives.

The 131 funds ordered to be liquidated account for about 4.6% of all funds in Türkiye and 7.7% of portfolio value, Yılmaz said on Thursday.

When will first payments be made?

Payments will begin on Thursday for 43,643 investors in 17 funds run by three of the companies: A1 Capital, Bulls and Pardus. These funds are being wound down under the “ordinary” liquidation method, which started on Monday.

Authorities are also preparing ordinary liquidation for Atlas Portföy. If the necessary collateral is secured, its 56,614 investors in 16 funds would be paid quickly, Yılmaz said. Another 49 private funds under the first three companies, with 2,098 investors, will be dealt with separately.

The remaining three portfolio management companies include Tera, Hedef and Pusula.

What about other funds?

The remaining funds will go through “extraordinary” liquidation, a new process that depends on a bill now before Parliament and expected to pass soon.

Under the plan, investors would receive an interim payment of up to TL 1 million ($20,326) of their original investment.

Key features of the plan:

The limit applies to each fund separately. An investor with money left in three funds could receive up to TL 1 million from each.

Small investors come first. Roughly 350,000 investors are said to have less than TL 1 million in the funds. They are due to be paid first, with payments planned within October. Money market funds will also be given priority.

Larger claims will be paid later. Investors owed more than TL 1 million lira will receive the rest in stages.

The interim payment is an advance. It will be deducted from what each investor is finally owed.

How will amounts be calculated?

The Central Registry Agency (MKK) will calculate each investor’s “net investment amount,” which forms the basis of the payment.

Officials say the calculation method has been written, and the figures will be produced once price data arrives from Takasbank, the clearing and settlement institution.

The plan being drawn up also envisages paying investors an inflation adjustment on top of their principal.

Is there government guarantee?

No. Officials say public money cannot be used to cover private investment losses. Unlike bank deposits, investment funds carry no state guarantee, and that applies especially to higher-risk hedge funds.

The government’s stated aim is to resolve the problem using the money and assets inside the funds.

Where will money come from?

Each fund’s securities, property and other assets will be sold for cash. The funds’ debts will be paid and amounts owed to them collected.

To handle this, the SPK has opened 131 refund accounts, one per fund, and one general share refund account at the Savings Deposit Insurance Fund (TMSF). Money collected in each fund’s account will go to that fund’s creditors. Money in the general account will be distributed among the funds using a method the SPK will set.

Justice Minister Akın Gürlek said earlier this week that five people had returned profits that authorities say were made unfairly, and that such gains will be transferred to the TMSF fund.

How long will it take?

Authorities expect the full liquidation to take up to six months, after which the final balance left in each fund will be known.

If the bill passes, officials say the interim payments will be made in October, meaning most of the 455,758 affected investors would be repaid in full.

How many people are affected?

According to officials, the 131 funds have 455,758 investors. Ziraat Bank is responsible for liquidating 125 funds, with 151,247 investors, and Işbank for six funds, with 388,718 investors.

What about criminal investigation?

As of Wednesday, authorities had taken legal action against 220 people, including managers of the troubled fund companies. Of these, 85 are in custody, arrest warrants have been issued for 23 suspects, and 81 people face travel bans.

Prosecutors have issued 21 seizure orders covering property of 63 individuals and 12 legal entities. The bank, cryptocurrency and safe-deposit box assets of 67 people and companies have also been seized.

The Daily Sabah Newsletter

Keep up to date with what’s happening in Turkey,
it’s region and the world.

SIGN ME UP

You can unsubscribe at any time. By signing up you are agreeing to our Terms of Use and Privacy Policy.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Türkiye’s capital markets will emerge from the fund turmoil cleansed of “greedy parasites,” President Recep Tayyip Erdoğan said Wednesday, reiterating that the government would do whatever is necessary to resolve the problem.

Erdoğan said the administrative and political burden of the affair rested on the government’s shoulders.

Regulators last month ordered the liquidation of over 130 investment funds managed by seven asset managers following warnings by some that they could not meet redemption payments.

Authorities have since widened their investigation into suspected market manipulation in stocks and fund markets. Eighty-five suspects have been arrested so far in the probe, Justice Minister Akın Gürlek said Tuesday.

The funds ordered to be wound down had reached more than $20 billion (TL 983.94 billion) in assets over just three years. Nearly half a million investors have been affected, according to authorities.

Erdoğan said all relevant bodies were following the matter closely and had taken measures. He said those who infringed on the public’s rights, made unjust gains or committed fraud would be held accountable.

He said the economic leadership and other institutions were taking the steps needed for financial markets to come out of the crisis stronger and healthier. He said the government was also following the investor side of the problem carefully.

“We are putting in motion the necessary administrative and legal processes so that our citizens’ savings are paid as soon as possible, without placing a burden on the public,” he said.

Inquiry into possible negligence

The newly created Fund Coordination Board, chaired by Vice President Cevdet Yılmaz, has been tasked with overseeing the liquidation of the funds. The State Supervisory Council (DDK) has also been assigned to examine the issue.

“We will not turn a blind eye to the slightest negligence or any breach of law or rules,” Erdoğan said.

He said some were waiting eagerly for Türkiye’s economy to fall into crisis, but that at the end of this process Turkish capital markets would shed their impurities and rid themselves of “greedy parasites that feed on small investors’ savings.” He said the financial system would emerge sounder and healthier and continue to grow stronger.

Judiciary, administration, politics

Erdoğan said the matter had judicial, administrative and political dimensions.

The independent judiciary would do its own work, he said. Economic actors were taking the steps required in their own areas of responsibility. Questions of conscience, ethics and belief, he said, were a matter for each individual. “But the burden on the administrative and political side of the issue is on our shoulders,” he said.

On the political side, Erdoğan said the issue could not be separated from conscience, morality and faith. He said his party had adopted the principle that “politics has only one harbor, and that is morality” when it was founded. He said the movement was built on belief, ethics and trust.

“No matter who stands in our way as we serve our people, our country, and our Muslim community, we will leave them aside and keep walking,” said the president.

Fatma Betül Sayan Kaya resigned last month as a deputy chair of the Justice and Development Party (AK Party) after she and her husband were alleged to have made substantial profits trading shares ahead of the turmoil.

The two were to give statements ​as suspects on ​Wednesday as part of the ⁠investigation, the Justice Ministry ​said.

The ministry said they would be questioned by the Istanbul Chief ​Prosecutor’s Office’s money ​laundering crimes investigation bureau.

The Capital Markets ‌Board (SPK) ⁠is also expected to file criminal complaints against the two under the country’s ​Capital ​Markets ⁠Law as part of the investigation, the ​ministry said.

The Daily Sabah Newsletter

Keep up to date with what’s happening in Turkey,
it’s region and the world.

SIGN ME UP

You can unsubscribe at any time. By signing up you are agreeing to our Terms of Use and Privacy Policy.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Türkiye’s central bank chief said Wednesday that a clearer slowdown in domestic demand and fading shocks would let disinflation regain momentum, stressing that policymakers would remain cautious to preserve gains achieved in lowering inflation.

Annual consumer price growth eased more than expected to 29.73% in September from 31.51% in August, official data showed Monday. That marked the first time inflation dipped below 30% in almost five years.

Inflation had peaked at 75.5% in May 2024 and has fallen substantially since, although the downward trend stalled earlier this year following a sharp rise in energy prices caused by the Iran war.

The Middle East conflict that began in February pushed up commodity prices, especially for energy, raised transport costs and disrupted supply chains.

That has caused global growth to weaken and inflation to rise, Central Bank of the Republic of Türkiye (CBRT) Governor Fatih Karahan said.

Underlying trend points lower

Policymakers at the central bank are particularly looking at underlying trend indicators, Karahan told an event in Istanbul.

Three-month averages pointed to a rising underlying trend between March and June, when the war’s effects were most visible. The trend has declined again since July, he said.

On an annualized basis, he said, the underlying trend, which rose to around 30% during the war, stood at 23.7% in September, about 6 percentage points below the current annual rate.

Karahan said this suggests disinflation will speed up if supply-side pressures fade, and he credited the tight policy stance’s effect on demand and pricing behavior.

Energy the exception

In September, annual inflation was lower than a year earlier in every category except energy.

Annual energy price increases reached 46.1%, about 11 percentage points above last year’s level, said Karahan, describing it as the main reason disinflation lost pace.

In services, annual inflation fell by 7 percentage points to 37.%. Monthly rent increases, which had long run well above services inflation, have slowed noticeably in recent months and are now below the services average. Karahan said this shows inertia from rents is weakening.

Annual inflation in the food and nonalcoholic drinks category fell to 27.6% from 36.1% a year earlier, helped by a recovery in agricultural output after last year’s adverse weather. Karahan said the bank is watching global agricultural prices and climate risks closely.

In core goods, Karahan said annual inflation fell to 15.9% from 19.9%. He added that moderate core goods inflation, despite cost pressures, indicates weak demand is limiting the pass-through of costs.

He noted some upward pressures. Education services inflation slowed from a year earlier but ran higher than expected after September increases. Transport services inflation was 44%, above the previous year because of the indirect effects of higher energy prices. Communications services inflation jumped to 44% from 24%.

Some analysts said the September inflation reading raises the prospect of an interest rate cut at the Oct. 22 meeting.

The bank has kept its benchmark one-week repo rate at 37% this year, as it monitored ‌the inflation impact of the Iran war.

Weak demand, but expectations a concern

Karahan said first-half national income data and indicators for the third quarter point to weak domestic demand. Excluding gold, retail sales growth slowed in the third quarter, he said, and limited growth in quarterly card spending also confirmed the slowdown.

Inflation expectations have not improved as the bank had forecast at the start of the year, which Karahan said remains a risk to disinflation and requires continued caution.

Early in the war, the bank had said the effect on the medium-term outlook would run through two channels: a possible deterioration in expectations and a cooling of economic activity. Karahan said that, thanks to the tight stance, deterioration in expectations has been limited, while weaker demand has pushed the underlying trend lower.

Reserves and current account

Karahan said the current account deficit narrowed in the second quarter despite adverse external conditions and remained roughly flat as a share of national income. He said high energy prices carry upside risk for the trade deficit, but the bank expects this year’s current account deficit to come in below its long-term average relative to national income.

He said gross reserves, which stood at $210 billion (TL 10.33 trillion) in late February, fell to $149 billion at the end of June under the war’s impact, before rebounding to $171 billion by the end of September.

Of the decline since February, $23 billion was due to the fall in gold prices, Karahan said. Net reserves excluding swaps were about $40 billion as of the end of September, he added.

The Daily Sabah Newsletter

Keep up to date with what’s happening in Turkey,
it’s region and the world.

SIGN ME UP

You can unsubscribe at any time. By signing up you are agreeing to our Terms of Use and Privacy Policy.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

The global economy is under threat from several issues simultaneously, including persistently high energy prices, record public debt and risks from the AI investment boom, the International Monetary Fund’s (IMF) chief ⁠warned on Wednesday, urging governments to implement protective fiscal and monetary policy measures.

In a ⁠speech previewing the IMF and World Bank Annual Meetings next week in Bangkok, IMF Managing Director Kristalina Georgieva said the world was being pulled in two directions – a negative energy supply shock from the Middle East conflicts and a positive demand shock from artificial intelligence that is also fueling inflation.

“The combined impact of these ​two forces is highly uneven across the world,” Georgieva said, adding that the AI boom was bypassing many countries.

New ​IMF ⁠growth forecasts to be released during the Bangkok meetings will show that the biggest growth downgrades will come in economies ravaged by war, Georgieva said.

These include Ukraine, suffering significant damage to civilian and economic infrastructure, and Gulf countries hit by Iranian strikes and sharply reduced energy exports.

Georgieva did not indicate in her prepared remarks whether the IMF’s latest World Economic Outlook would change the overall 2026 global growth forecast from the sluggish 3.0% rate forecast in July.

That forecast, which predicted a rebound to 3.4% growth in 2027, assumed the Strait of Hormuz would start to reopen in mid-July and return to pre-war conditions by March 2027. It assumed oil prices would average $89 a barrel in 2026 and $78 a barrel in 2027.

Georgieva said oil prices remain at $100 a barrel, with impaired refining capacity adding another $100 in “crack-spread” margins per barrel for key products including diesel. The winter heating season will boost demand even as natural gas supplies remain restricted by threats to LNG shipping through the Strait of Hormuz, she added.

“Even if the war in the Gulf were to end soon, the problem of high energy prices will likely persist for some time,” Georgieva said, adding that Brent crude oil futures predict high ⁠oil ⁠prices through 2027.

Higher energy prices are pushing up inflation, policy rates and benchmark bond yields, she said, noting that U.S., German and Japanese 10-year sovereign yields are now at their highest levels since 2007, 2009 and 1996, respectively, and still climbing.

Growing debt load

Adding to the worries to be discussed by the IMF’s 191 member countries next week is a growing public debt burden that is sapping growth and adding inflationary pressures, Georgieva said. The IMF says public debt is at the highest level since World War II and is projected to exceed 100% of GDP before 2030.

Georgieva singled out advanced economies, led by the U.S., as the “worst offenders” on debt loads, with debt-to-GDP ratios higher than those of emerging markets and low-income countries.

Policymakers can no longer rely on higher growth rates alone to solve fiscal problems, she said.

“And yet we don’t see decisive action in the high-debt advanced economies where the need of the hour is for credible medium-term fiscal consolidation plans, ⁠supported in some cases by upfront fiscal measures, including to take some pressure off monetary policy,” she said.

After 5.5 years of above-target inflation, Georgieva said inflationary pressures were persisting, from the AI build-out, energy and food price shocks, tariffs, higher defense spending and higher debt service costs.

“Now may be a good time for a prudently hawkish bias in many countries’ monetary policy,” Georgieva said, adding that rate hikes ​by the U.S. Federal Reserve (Fed), the European Central Bank (ECB) and the Bank of Japan (BOJ) were “highly appropriate.”

In a fireside chat following her speech, Georgieva added that the “most important task” for monetary ​policy in the current environment is to focus on price stability and for central banks to communicate their resolve in maintaining it.

“They can only do it when central banks are independent, and when central banks resist pressure that may come from the fiscal side to ease the burden by basically ⁠stepping up, buying debt, making ‌it so that ‌the situation from the fiscal side eases,” she said.

“I would call this monetary cowboys, running to the rescue of the ⁠fiscal agents, and my message is: please don’t.”

AI risks abound

Georgieva highlighted other risks from AI, ‌where investment as a share of GDP is likely to exceed that of railroads, the electricity grids or telecommunications infrastructure.

The rising economic and financial concentration puts pressure on AI companies to deliver productivity and earnings gains to ​justify lofty valuations, she said, warning that market disappointment could ⁠turn into “a far-reaching shock.”

But she said IMF research suggests that AI, done right, could add a half percentage point ⁠of extra world growth annually.

AI preparedness is key, she said, including regulatory guardrails that “help manage AI’s substantial perils, which include large-scale labor market fallout, serious cyber and stability risks ⁠and frontier models threatening to escape human control ​and run amok.”

In addition to building fiscal strength, even at difficult political costs, Georgieva said governments should take other steps to boost growth, including reforms that would develop improved workforce skills, make corporate startups and wind-downs easier, boost energy security and streamline regulations.

The Daily Sabah Newsletter

Keep up to date with what’s happening in Turkey,
it’s region and the world.

SIGN ME UP

You can unsubscribe at any time. By signing up you are agreeing to our Terms of Use and Privacy Policy.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.