Turkey’s government launched the 2026 Budget and unveiled its outlines a cautious and realistic economic roadmap amid persistent inflationary pressures.
Turkey’s 2026 Budget Targets draft showed that Turkey expects limited growth next year, while containing inflation and controlling prices remains the top priority of economic policy.
This new approach represents a continuation of the economic transformation Ankara began with a return to more stringent traditional monetary policies, away from a focus on growth at any cost.
This “Turkish 2026 Budget” is evidence that the government has become cautious about inflation and prefers long-term stability over quick gains, sending a clear message to investors about Turkey’s commitment to fiscal and monetary discipline.
First: Main Objectives of the Turkey 2026 Budget Draft
The 2026 budget is part of Turkey’s Medium-Term Economic Program (MTP), and is centered around key pillars aimed at balancing growth and combating inflation.
1. Modest and Realistic Growth:
- Modest Forecast: The government expects modest GDP growth in 2026 (typically in the 3-4% range in current budgets).
This relatively low forecast compared to previous targets reflects the recognition that tighter monetary policy (raising interest rates) will have a slowing effect on economic activity.
- Sustainable Growth: The planned slowdown aims to ensure that future growth is more sustainable and less vulnerable to inflation spikes, by focusing on increasing exports and improving production efficiency rather than relying on loans and excessive spending.
2. Prioritising Inflation Containment:
- Reducing Inflation: The budget anticipates a gradual decline in annual inflation rates (a target rate is set, often significantly lower than current rates). This forecast is contingent on the Central Bank continuing its tight policy, which includes maintaining high real interest rates.
- Constrained Spending: The project refers to a government commitment to restricting unnecessary public spending and reducing the budget deficit, thus reducing inflationary pressures resulting from excessive government spending.
3. Fiscal Discipline:
- Deficit Target: The budget sets a clear target for the deficit-to-GDP ratio (expected to be below 3% or 4%) to ensure stable public debt and reduce the need for external borrowing.
Fundamental Challenges to the Turkish Economic Model
The new budget faces significant structural challenges that make achieving its objectives
difficult, most notably:
1. Inflationary Obsession:
Inflation remains the biggest challenge. Despite the Central Bank’s efforts, expected inflation in 2026 may remain above target, driven by deeply entrenched inflation expectations among consumers and businesses, which are difficult to break. Furthermore, any external shock (such as rising global energy prices) could return inflation to worrying levels.
2. Exchange Rate and Lira Stability:
The effectiveness of combating inflation is closely linked to the stability of the Turkish lira exchange rate. Lira stability requires sustained foreign currency inflows, whether through foreign direct investment or strong exports, which necessitates maintaining investor confidence in new economic policies.
3. Balance Growth and Unemployment:
Limited growth means a potential rise in unemployment rates, or at least difficulty creating new jobs at the pace required to absorb new entrants to the labor market.
This balance between combating inflation and preserving employment is the most important test of economic policy in 2026.
Third: Expected Measures to Boost Revenue
To finance the limited deficit and achieve budget targets, the government is likely to focus on the revenue front by:
- Increasing tax collection efficiency: Implementing strict measures to reduce tax evasion and expand the tax base, particularly for high-income earners and certain sectors.
- Collecting delinquent tax debts: Continuing programs to “restructure” debt owed by companies and individuals and encourage repayment.
- Privatization and IPOs: The program may include accelerating the sale of some government assets or offering stakes in state-owned companies to increase non-tax revenues.
Turkey’s draft budget for 2026 demonstrates that the government has chosen a difficult but inevitable path, prioritizing monetary stability over a return to strong growth. The success of this budget will depend on the ability of the central bank and the government to work in full and effective coordination to combat inflation while maintaining sufficient liquidity in the markets.
Key Points
- Economic Outlook: Turkey expects limited GDP growth in the draft 2026 budget.
- Top Priority: The primary goal of the budget is to contain inflation and return to price stability.
- • Fiscal Policy:
- The budget signals the government’s commitment to fiscal discipline and restricting spending to reduce the budget deficit.
- • Inflation Challenge:
- The challenge of defying established inflation expectations in the Turkish market continues, despite the tightening of monetary policy.
- • Revenue Prospects:
- The government is expected to rely on increasing the efficiency of tax collection and reducing evasion to boost its revenues.
