Turkey’s Economic Plan for 2026-2028

Turkey’s Vice President, Cevdet Yılmaz, recently presented the country’s Medium-Term Plan (MTP) for 2026-2028. The plan outlines the government’s economic projections and policy agenda for the next few years.

Economic Growth Projections

The MTP revised the country’s GDP growth forecasts downward by 0.7 percentage points for each year from 2025 to 2027. However, the government expects growth to accelerate from 3.3% in 2025 to 5% by 2028. This growth trajectory is below Turkey’s long-term average, indicating that policymakers are prioritizing reducing inflation over rapid economic expansion.

Comparison with Market Expectations

The official projection of 3.3% for this year is more optimistic than the 2.9% consensus in the latest Market Participants Survey. The 2026 forecast is broadly in line with the market’s 3.7% expectation. This suggests that the government is taking a cautious approach to economic growth.

Inflation Projections

The MTP projects a year-end inflation rate of 28.5% for 2025, down from 33% in the previous plan. For 2026 and 2027, inflation estimates have been revised upward compared to the previous plan. This is in line with the central bank’s forecast range of 27-29%. The government is working to reduce inflation, which is a major challenge for the country.

Fiscal Policy

The MTP forecasts a central government budget deficit of 3.6% of GDP for 2025, up from 3.1% in the earlier plan. The plan anticipates a gradual improvement, with the deficit narrowing to 2.8% of GDP by 2028. While the government is trying to maintain fiscal discipline, a notable increase in primary spending and interest payments is expected next year.

External Factors

The government projects a current account deficit of 1.4% of GDP in 2025, with a gradual decline to 1.0% by 2028. However, the growth path envisioned in the plan raises questions about the feasibility of achieving this external adjustment.

Challenges Ahead

Vice President Yılmaz acknowledged the short-term trade-off between inflation and growth, reiterating the government’s commitment to curbing inflation without triggering a recession. The new MTP offers more realistic projections than its predecessor, but achieving the goals of external adjustment and disinflation remains a challenge.

Conclusion

In conclusion, Turkey’s Medium-Term Plan for 2026-2028 outlines a cautious approach to economic growth, prioritizing reducing inflation over rapid expansion. While the plan offers more realistic projections, the government faces significant challenges in achieving its goals. The combination of subdued public investment and relatively strong current spending may not bode well for long-term growth prospects. The government must balance its fiscal policy to support disinflation while promoting sustainable economic growth.