Treasury and Finance Minister Mehmet Şimşek on Tuesday said Türkiye's economic program had demonstrated resilience against shocks, pointing to falling risk premiums and a significant increase in foreign reserves.
Speaking at the Islamic Finance Summit held in London, Şimşek emphasized that the government's medium-term program is delivering concrete results, despite a challenging economic landscape.
The program has centered on policies primarily aimed at curbing inflation and has seen authorities implement aggressive tightening measures since mid-2023.
Inflation in June eased to 35.1%, less than half the level it reached a year earlier, as tight monetary policy continued to slowly cool price expectations.
Stressing the progress, Şimşek said inflation dropped from 72% the same month of 2024.
"Our biggest challenge is inflation. Disinflation is underway. We hope that inflation will fall to single digits by 2027," he noted.
The better-than-expected June print has renewed expectations that Türkiye's central bank would begin cutting rates again this month.
It had initiated its easing cycle in December and last cut in March before pausing as assets and the Turkish lira fell sharply after Istanbul Mayor Ekrem Imamoğlu was jailed pending trial over graft charges.
Although the policy rate currently stands at 46%, the central bank kept the overnight rate at around 49%. The market is closely monitoring the level of overnight rates for further signals on the policy path ahead.
Authorities expanded their anti-corruption investigations over the last weekend to include the mayors of the big southern cities of Adana, Adıyaman and Antalya, run by the main opposition Republican People’s Party (CHP).
Following detentions, Türkiye's international bonds and lira weakened on Monday, and the cost of insuring government debt against default rose.
Şimşek made a strong pitch to international investors, describing Türkiye as a "large, dynamic and reforming economy."
"It's already a $1.4 trillion economy ... with a population of nearly 90 million – including refugees," he said.
He underscored the country's long-term growth performance. "Over the last 20-25 years, Türkiye has outperformed many emerging markets, especially not excluding China and India," he said.
The global economy is expected to grow by 2.3% to 2.5% this year, but Şimşek emphasized that this rate is not sufficient.
The minister also noted that the current account deficit is narrowing, and Türkiye even recorded a surplus last year when excluding gold and energy imports.
"This came after years of external imbalances. The (2023) earthquake dealt a major blow to Türkiye's fiscal position, but historically, we've maintained a very cautious fiscal stance, which is reflected in our relatively low debt ratios," Şimşek said.
Last year, the debt-to-gross domestic product ratio was around 25%. "Our fiscal consolidation efforts stem from the desire to support the central bank's disinflation objectives," said the minister.
Şimşek said Türkiye's net foreign exchange reserves have risen by nearly $89 billion, and foreign-exchange-protected deposits – a major contingent liability – have dropped by $130 billion.
"This is like increasing reserves by $130 billion," he said, compared to August 2023. "Reserve adequacy has been achieved using international definitions."
On Islamic finance, he described the industry as "structurally better equipped to address uncertainty and ambiguity," citing its foundational principles that "avoid interest, excessive uncertainty, and speculative transactions."
He emphasized the resilience of Islamic finance during times of global instability.
"Islamic finance tends to be, relative to its conventional peers, more resilient ... because it provides you more stability, liquidity as a part of risk sharing. This is really the essence in terms of your profit and loss arrangements," he noted.
While the global share of Islamic finance remains modest – accounting for roughly 1% of global financial assets – Şimşek noted its growth trajectory. "The state of Islamic finance in global financial assets has gone up elevenfold since the year 2000," he said.
In contrast to the global average, Islamic finance plays a more substantial role in Türkiye's financial ecosystem, accounting for "roughly about 8% of banking assets, 12% of capital markets and about 5.5% of the insurance market."
Türkiye currently ranks 10th among 136 countries in Islamic finance and aims to enter the top five globally, Şimşek added.
About the disbanding and disarmament of the terrorist group PKK, Şimşek said, "it's happening," and the development would unlock "massive economic gains" and support "a more inclusive and democratic society."
"Finally, when you think about a Turkish story, I just want to remind you that there is something really big happening. It may not be capturing headlines here, but after almost 50 years of terrorism against Türkiye ... the PKK has decided to disband itself and disarm, and it's happening. This suggests massive economic gains, more inclusive and democratic society, and has prospects for regional integration," he said.
"We can read the table, and of course, you will get new engines of growth in Türkiye, because demographics are extremely favorable in the east and southeastern Türkiye. So this is the story. This is why you should consider it."
The minister emphasized Türkiye's reorientation toward the West, saying: "We are re-anchoring to the West ... and we rely on the U.K. in making sure that we stay close."
"We are pulling out of geopolitical recessions of the last decade."
He emphasized the continued importance of bilateral relations with the Britain. "When the U.K. was in the EU, it was one of our greatest supporters. But even outside of the EU, we rely on the U.K. in making sure that we stay close and we work very closely together with the United States, the European Union and the U.K."
He also underlined the country's unique geopolitical role as a mediator. "Türkiye is your best partner in terms of mediating conflicts and building peace – whether you talk about Russia-Ukraine, Armenia-Azerbaijan, or stabilizing Syria."
