Post-election economic policy explained


Everyone is thinking about who will win the elections nowadays. However, it’s also important to focus on the economic policy following the elections

The economy is caught in an ‘interest rate’ (IR) trap. IRs have been forcibly reduced. Maturities were shortened. The system is waiting for elections at home and developments abroad.


Whoever wins the election, a program to fight against inflation will be implemented after the election. Monetary expansion will be ended and interest ratess will be increased.

Hot money will return to Turkey in this case. Non-residents may again buy the equities and government debt securities (GDS) that they sold in the last four years. Foreigners’ GDS stock, which totaled USD 33bn in 2017, now has fallen to USD 1.4bn.


Foreigners will make portfolio investments when a new, reliable economic program is implemented. FX rates will rapidly decline. Some reserves will be be saved. An extreme FX rate decrease will cheapen imports and increase the current account deficit. The independent Central Bank (CB) will find the balance and buy FX.

Control of hot money/short-term FX inflows is important. Rationalist ‘capital movement controls’ must be implemented. 

This isn’t over. If more TRY is released to the market than necessary, the CB will intervene to stabilize it.


The funding cost of the financial sector that fell due to the ‘IR trap’ will start to rise. The system will reflect a hike in loans and securities. The long-term fixed GDS that the CB and BDDK forced banks to buy will harm the system. In line with their size, banks will try to delegate their losses to the domestic debt authority.  

IR payments of TRY 566bn, TRY 698bn and TRY 775bn will be made from the central budget in 2023, 2024, and 2025, respectively, according to the Medium-Term Economic Program (OVP). IR payments totaled TRY 181bn in 2021. Investment expenditures, meanwhile, will hover around TRY 300-380bn in the OVP period. 


What will happen when the FX-protected TRY deposit accounts (KKM), holding over USD 73bn, end? How will the government find this much FX if everyone wants to buy FX again? Will new administrative methods be thought up? Or will more IR payments be made to TRY 1.3tr worth KKM? If so, how will the budget meet this cost?

How will TRY 520bn in official deposits, the majority of which are owned by the Unemployment Fund, be managed? Will the Treasury further borrow and hold deposits in public banks? When will the Treasury take back this money, which was provided as a loan?

The annual burden to come from the Public-Private Partnership (PPP) and Credit Guarantee Funds’ (KGF) guarantees is unknown. Burdens such as IR payments for domestic debts, KKM, PPP, and KGF will further stress the budget, which is already under immense pressure.

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