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Türkiye’s economic program remains on course despite recent geopolitical and energy-related shocks, with fiscal and monetary policies continuing to support disinflation, Treasury and Finance Minister Mehmet Simsek and Central Bank Governor Fatih Karahan said Friday.
Speaking at the 69th General Assembly of the Banks Association of Türkiye at the Istanbul Finance Center, Simsek said price stability remained the central priority of the government’s economic program.
He said fiscal discipline and structural reforms would continue to provide strong support for reducing inflation permanently to single digits.
“Despite shocks, what matters is progress,” Simsek said. “What matters to us is the direction of travel.”
“From that perspective, with a delay of a few months, the disinflation process will continue again and get back on track,” he added.
Simsek said the government’s policy priorities had not changed despite recent developments and that price stability was essential for achieving sustainable growth and a fairer distribution of income.
He said the economic program implemented over the past three years had helped Türkiye build buffers against multiple shocks and strengthen its resilience.
Simsek said there was no reason for concern about fiscal discipline, despite elevated spending to repair damage from the earthquakes.
“We are healing the wounds of the earthquake, and despite earthquake spending, we have established fiscal discipline very strongly compared with countries similar to us,” he said.
Simsek said Türkiye’s budget deficit target for the year was 3.5% of gross domestic product (GDP), but actual performance would very likely be better.
He said the government had activated the sliding-scale fuel tax system to prevent sharp energy price increases linked to the U.S.-Israeli war with Iran from being fully passed on to consumers.
Simsek said excise duties on fuel had been reduced to nearly zero over the past three months, but the government still expected to meet its budget deficit goals.
“Despite the sliding-scale system, we will most likely deliver a better performance than the 3.5% budget deficit target,” he said.
Simsek said the fiscal space created by the government had allowed Türkiye to respond to shocks without losing control of the budget.
He added that fiscal discipline had been one of the strongest features of Türkiye’s economic management over the past two decades.
Simsek said Türkiye could finish the year with a current account deficit of 3% of GDP or less.
“We may close the year with a current account deficit of 3% or below,” he said. “I see this area, which was viewed as the biggest vulnerability, as very comfortably manageable today.”
He said the improvement in the current account was structural rather than temporary and became clearer when gold imports were excluded.
Simsek said the annualized deterioration in the foreign trade deficit since December had remained below $1.5 billion despite the sharp increase in oil prices.
He added that tourism and other critical areas had not experienced significant deterioration.
“This shows that our real sector, exporters and banking system have the ability to respond correctly to such shocks,” Simsek said.
Türkiye’s gross external financing requirement is expected to be about 17% of GDP this year despite the effects of the war, he said.
That level remains below the country’s long-term average of about 20%.
Simsek said the ratio would have fallen below 15% without the war-related shock.
He also said Türkiye’s gross external debt stock was expected to be around 32% of GDP this year, below its long-term average of about 44%.
He described both figures as manageable and favorable compared with many emerging economies.
Simsek said there was no room for concern over Türkiye’s reserves.
He noted that a significant part of the central bank’s reserves was held in gold and that the decline in gold prices had affected the reserve total.
Nearly 40% of the decline in reserves after the war was caused by changes in gold prices, he said.
“Compared with previous shocks, there is no room for concern here either,” Simsek said.
He added that Türkiye’s external financing needs, debt ratios, fiscal position and current account outlook all supported macro-financial stability.
Simsek said structural transformation remained essential for achieving lasting price stability, stronger fiscal discipline and a sustainable current account balance.
He said investment, employment, production and exports remained the main priorities of President Recep Tayyip Erdogan and the government.
Central Bank Governor Fatih Karahan said the bank would continue to use all policy tools decisively to protect price stability and financial stability.
“At the point we have reached today, we assess that the necessary conditions for the continuation of the disinflation process have been preserved thanks to our policy tools, strong reserve position and macroeconomic rebalancing,” Karahan said.
He said geopolitical developments and volatility in energy markets had created short-term risks for inflation and the external balance.
However, he said those developments were not expected to reverse the disinflation process if appropriate policies remained in place.
Karahan said the central bank’s tight monetary policy stance would continue.
Future decisions would take into account how geopolitical developments affected inflation through costs, economic activity and expectations, he said.
Karahan added that rebalancing in domestic demand, a healthy current account outlook and a strong reserve position continued to support the disinflation process.
“The path to healthy and sustainable growth in the banking sector runs through low and stable inflation,” he said.
Karahan said Türkiye’s financial markets continued to function effectively during periods of heightened global volatility.
“During periods of increased global volatility, we see that our markets continue to function healthily,” he said.
He added that long-term external financing inflows were continuing, demonstrating the resilience of Türkiye’s banking sector.
Karahan said the central bank would maintain close cooperation with banks as it pursued price stability and supported financial stability.
Both Simsek and Karahan said the current policy framework remained capable of absorbing shocks while keeping the broader economic program on its disinflation path.
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