Turkey's budget deficit expands to an astronomical $25 billion in the first half of 2025, with a significant 93% surge in interest payments driving the gap.
In the first half of 2025, Turkey has seen a significant increase in its interest payments, leading to a widening budget deficit and posing substantial fiscal challenges for the country.
The surge in interest payments is primarily attributed to a 93.5% rise in expenditures over the January-June period, reaching approximately ₺1.1 trillion ($24.36 billion). In June alone, interest spending jumped an astounding 177.7% year-over-year to ₺275.7 billion ($8.2 billion).
This escalation in interest payments is due to a combination of factors. Firstly, Turkey faces record-high domestic and external debt repayments in the coming months, exerting pressure on treasury cash reserves despite the government's successful $7 billion bond issuance in international markets.
Secondly, while total budget revenues increased by 46.1% year-over-year to ₺5.6 trillion, expenditures also rose by 43.7% to ₺6.6 trillion. Interest payments were one of the main contributors to the budget gap.
The widening budget deficit has reached approximately ₺980.5 billion ($24.36 billion), accounting for more than half of the government's full-year deficit target. This could potentially lead to an overshoot of the projected deficit-to-GDP ratio.
The increased borrowing has not alleviated the fiscal imbalances, as the Treasury's cash reserves have fallen sharply. The 12-month cumulative cash deficit has increased to TRY 2.38 trillion, equivalent to around 4.7% of GDP, above program targets.
The doubling of interest expenses indicates heightened borrowing costs or refinancing at less favourable terms. A domestic debt roll-over ratio above target (117% in June) suggests ongoing reliance on debt issuance, raising concerns about future debt servicing burdens.
The rising interest payments limit fiscal space for primary expenditures, which grew by 36.5% but remain constrained, and may crowd out public investment or social spending, potentially slowing economic growth and undermining fiscal sustainability.
In conclusion, the sharp increase in interest payments in 2025, driven by elevated debt servicing costs and heavy repayment schedules, is a key driver of Turkey's widening budget deficit and escalating fiscal pressures. This raises risks for the country's fiscal stability and may necessitate continued fiscal adjustments or structural reforms to manage debt sustainability and economic resilience in the second half of 2025 and beyond.
- The government in Ankara is grappling with a widening budget deficit in Turkey, reaching approximately ₺980.5 billion ($24.36 billion) due to a surge in interest payments, which account for more than half of the government's full-year deficit target.
- The inflated interest payments, amounting to nearly ₺1.1 trillion ($24.36 billion) in the first half of 2025, have served as a major challenge for the Turkish government's finance management and business operations.
- Despite the government's successful $7 billion bond issuance in international markets, ongoing interest payments continue to pose substantial financial burdens on the Turkish state, as total interest expenses increased by 177.7% year-over-year in June 2025.
- Theburgeoning budget deficit has sparked concerns about future inflation rates in Turkey, as the continued reliance on debt issuance and elevated interest expenses might strain the Turkish Lira and slow economic growth in Istanbul and other regions.
- The financial struggles of the Turkish government, characterized by growing debt servicing costs and interest payments, necessitate prompt action from policymakers to implement fiscal adjustments or structural reforms, ensuring the sustainability of Turkey's economy and fiscal stability in the long term.
