LAST year, Türkiye launched a ‘tight monetary policy’ in its economy, and it has been gradually approaching its inflation and current deficit targets. In the third quarter (August 2024), Türkiye declared the highest current surplus of the last five years and started to reap the fruits of its resolute economic policy. At the end of the third quarter, Türkiye was the only country to have its credit ratings increased by three major credit rating agencies. The rating increases were maintained in the following months.

Rising Ratings

The fourth quarter witnessed the continuation of Moody’s two-notches upgrade in July. Fitch upgraded Türkiye’s creditworthiness to ‘B+’ in March 2024 and to ‘BB-’ in September 2024. Following the increase in May, Standard & Poor’s (S&P) also raised Türkiye’s rating in November. S&P increased Türkiye’s creditworthiness to ‘B+’ from ‘BB-’ with a stable outlook. The credit rating agencies stated that ‘inflation projections would improve as the tight monetary policy is maintained in Türkiye’, revealing a supportive stance toward the government’s economic program.

Current Deficit

Meanwhile, the current deficit issue has also been witnessing positive developments. Following the positive development expected in the monthly current deficit in the second half of the year, the annual current deficit was below USD 10 billion in October.

The current deficit was reduced by USD 46 billion compared to May 2023 and hit its lowest level in the last 33 months. Yearly current deficit’s rate to national income fell to 0.8% in the third quarter.

Updated Program

The ongoing downward trend in inflation and the current deficit is accompanied by the determination to achieve the macroeconomic targets. In this vein, Türkiye upgraded its program based on the results of the implemented policies and the internal and external developments. The Medium-Term Program (MTP) that covers the 2022-2027 term reveals Türkiye’s targets and its 3-year’ route in the economy. According to the updated MTP, the current deficit will remain at 2% in 2025. In 2024, the exports are expected to increase to USD 264 billion, and imports are projected to fall to USD 345 billion in line with the program. In this way, the current deficit will be USD 22 billion in 2024 and USD 28.6 billion in 2025. The budget deficit of around 4.9% in 2024 is projected to fall to 3.1% in 2025 and 2.5 % in 2027. As these developments occur, the economic administration points to the targets in production and exports. In this framework, Türkiye will increase its share in global trade by increasing its value-added production and reaching higher ranks in supply chains.

Value Added Products Export

In recent statements, the economic administration has emphasized the will to achieve the MTP targets and value-added export goals. To this end, methods to encourage value-added production and export shall stand out.

As stated by the government, a new model will be adopted in 2025. To achieve a stable and sustainable growth target, intensive support will be provided to export-based activities. Within this scope, more facilities will be available for high-tech and value-added production through rediscount credits. The Central Bank, on the other hand, will maintain its strict stance on monetary policy until price stability is achieved.

The last four years’ lowest credit default swap

The credit default swap hit its lowest rate in 2024’s first half. The risk premium/ credit default swap (CDS) has dramatically increased in Türkiye in the past few years. However, there are positive developments in this area as well. The decrease in CDS reflects foreign investors’ interest in Turkish Lira assets, favorable ratings of the credit rating agencies, and the economic administration’s determined steps to permanently reduce the rate of inflation, along with positive expectations in foreign finance.

Increase in foreign investments

Türkiye has been taking careful steps as part of its inflation targets and Medium-Term Program while drawing new foreign investments. Within this scope, a portfolio transfer of USD 2.9 billion in September and USD 28 billion in the first nine months of the year were observed. A review of the developments reveals a contribution to the reserve currency through improved current account balance, reduced demand for external finance and increased capital inflows. These developments support Türkiye’s macro stability.