Turkey's international debt sales could hit record in 2024- JPMorgan

Turkey's pivot back to orthodox fiscal policies could pay off with record debt issuance and the continued return of foreign investors in 2024, JPMorgan Managing Director Stefan Weiler told Reuters.

International investors had fled Turkey amid years of low interest rates, despite soaring inflation, as well as a complex web of financial regulations and foreign exchange controls.

But after a surprisingly strong election victory in May, President Tayyip Erdogan's move back towards orthodox monetary policies began luring back international capital.

"From our side, we see Turkiye as a potential big story for next year," Weiler, the head of JPMorgan's CEEMEA debt capital markets, told Reuters. He added that he could easily see issuance from the country exceed $25 billion next year.

The central bank under Hafize Gaye Erkan, who was appointed as governor in June, began tightening interest rates straight away. But it was the bank's larger, more aggressive autumn hikes that re-launched debt sales, with domestic appliance maker Arcelik in September selling the first international bond since the start of 2022.

Issuance from corporates, banks and the government for 2023 exceeds $18 billion, the second highest on record, according to JPMorgan calculations.

The key interest rate, which stood at 8.5% pre-election, now stands at 40%, with another hike to 42.5% expected later on Thursday.

In 2024, the government is expected to issue around $10 billion in international bonds, matching this year's number. Weiler said he expected a "significant pick-up" in borrowing from cash-hungry corporates and banks.

"As long as market conditions globally are constructive, and as long as there's no reversal of some of the pivots that were made, Turkiye should see the busiest year ever in terms of international capital markets issuance activity," Weiler said.

He added that they did not expect the country to backslide from the recent fiscal pivot, despite Erdogan's historical penchant for unceremoniously sacking central bank chiefs and reversing policy.

"Foreign capital already started flowing back and it seems like the tide has turned for Turkiye," he said.

"I would be amazed if that was to be undone and feel that the upcoming local elections will further emphasise Turkiye's direction of travel," he said, referring to the local elections on March 31.

More widely, JPMorgan is expecting a pickup in global emerging market hard-currency debt issuance next year, but Weiler said that with a drop off in issuance from China, the total level would be nowhere near a historic peak.