How Turkey’s government policies are paving the way for economic stability

After years of economic instability, Turkey is starting to see positive shifts in its economy, with notable progress in reducing inflation and strengthening fiscal policies. 

Recently, S&P Global raised Turkey's long-term sovereign credit rating from "B+" to "BB-"—marking the second upgrade this year. 

This improved rating reflects the government's success in stabilizing the Turkish lira, controlling inflation, and fostering economic confidence through strategic policies. Other credit agencies, such as Fitch and Moody's, have also raised Turkey's credit ratings in 2023 due to the government's improved fiscal management.

Turkey’s central bank has adopted a tighter monetary policy, which has begun to curb inflation effectively. As of September, the annual inflation rate fell to 49.38%, dropping below the central bank's policy rate for the first time since 2021. 

This development indicates that Turkey's restrictive monetary policy, aimed at controlling excessive inflation, is yielding results.

The Turkish central bank projects that inflation will decrease to 38% by the end of this year and further drop to 14% in 2024. 

The government shares this optimism, with forecasts of 41.5% inflation by the end of 2024 and a projected decline to 17.5% by the end of 2025. For Turkey, where inflationary pressures have historically been challenging to contain, these forecasts signal a notable economic shift.

With no scheduled national elections until 2028, Turkish policymakers have a window to implement demand-compression policies aimed at curbing inflation sustainably. 

This has enabled the government to pursue gradual fiscal tightening, supported by policies aimed at managing income levels and reducing domestic demand. The shift reflects a coordinated strategy to balance growth with economic stability.

The international rating agency S&P notes that Turkey’s rating could see further upgrades if the government continues to lower inflation toward single-digit levels. Achieving such progress could re-establish long-term confidence in the Turkish lira and boost domestic capital markets. The recent upgrades from Fitch and Moody’s similarly underscore Turkey's improved fiscal landscape and the global acknowledgment of its recent economic progress.

Reserve Accumulation and Currency Stabilization

One of the critical successes in Turkey’s economic policy is the accumulation of foreign currency reserves. 

This reserve build-up provides a cushion against external shocks, enhances financial stability, and supports the Turkish lira. By maintaining stronger reserves, Turkey is better positioned to manage inflationary pressures, stabilize its currency, and promote investor confidence in its financial markets.

Under President Recep Tayyip Erdogan, Ankara’s government has navigated an economic crisis that threatened to destabilize the nation’s fiscal health. 

Through decisive policies on fiscal tightening, currency stabilization, and controlled inflation, Erdogan’s administration has strengthened Turkey’s economic resilience. Although challenges remain, Turkey is increasingly viewed as an emerging success story in economic recovery, with more robust foundations for future growth.

S&P's recent decision to revise Turkey's outlook from "positive" to "stable" reflects the government’s progress in managing the economy. 

The new outlook balances the risks associated with inflationary pressures and high wage expectations against the Turkish government’s determination to achieve stable growth.

Turkey's current trajectory signals promise: reduced inflation, a stable currency, and investor confidence are paving the way for economic recovery. 

The government’s continued focus on managing inflation and achieving fiscal stability is a hopeful sign that Turkey may achieve single-digit inflation rates and stabilize its economy in the coming years.

As the country turns the page on years of economic uncertainty, Turkey’s current fiscal and monetary strategies are bearing fruit, offering hope for a sustained economic revival.