Türkiye

External financing needs remain among the largest in emerging markets, with gross external debt at ~USD500bn and a 12-month current account deficit reaching USD37.3bn by May 2026 – a 32% y/y widening driven by gold imports and primary income outflows. Excluding gold and energy, the current account posts a surplus (~USD3.6bn monthly), but the headline gap requires sustained capital inflows to finance. The March 2025 crisis depleted reserves rapidly: net FX reserves fell by USD15.5bn in a single month and gold reserves dropped from 614 to 535 tons between Q4 2025 and Q1 2026 as the central bank intervened aggressively. Corporate financing conditions remain tight, with the policy rate at 46% compressing margins across construction, retail and export-oriented manufacturing. Insolvencies have risen moderately in these sectors, and bank asset quality is under surveillance as credit growth slows. Sovereign access to international markets persists but at elevated spreads, meaning that any slippage in fiscal discipline or renewal of political turbulence could tighten conditions rapidly. The stabilization program’s credibility rests on sustained orthodoxy; any pre-electoral pivot would test investor tolerance.

The structural environment remains constrained by the contradiction between Türkiye's scale and ambition on one hand, and its governance deficit on the other. Frequent regulatory changes, administrative discretion and inconsistent enforcement continue to deter long-term capital allocation. State influence in banking, energy and construction distorts competition, while the post-earthquake reconstruction burden (~USD100bn estimated) stretches public finances and logistics capacity across southern provinces. Labor costs have risen sharply in real terms (minimum wage increases of 30-50% annually since 2022) while productivity gains lag, eroding competitiveness particularly against Southeast Asian peers in textiles and automotive components. Skills mismatches and brain drain accelerate as younger professionals emigrate. The business environment is further complicated by communication restrictions during periods of political instability – social media shutdowns during the March 2025 protests affected operational continuity for firms reliant on digital platforms. Judicial independence concerns persist, with contract enforcement and intellectual property protections among the weakest in the OECD area. 

Political risk has escalated structurally since March 2025. The arrest of Istanbul Mayor Ekrem İmamoğlu – Erdoğan's primary rival for the 2028 presidential election – triggered the largest protests since Gezi Park in 2013, with hundreds of thousands taking to the streets across all major cities. The government's response has been to widen the crackdown rather than accommodate: 15 opposition mayors remain imprisoned, courts have invalidated CHP party conventions in what is domestically termed the "absolute nullity crisis," and as recently as 29 July further district mayors are being detained. The systematic dismantling of the opposition's institutional infrastructure goes beyond individual detentions and represents a structural reconfiguration of Türkiye's framework toward a much less predictable environment. For investors, this consolidation provides short-term policy continuity but raises the medium-term risk of abrupt correction whether through social unrest, elite fracture or external pressure. The PKK ceasefire (March 2025) removes one pressure point but does not resolve underlying Kurdish political demands. Internationally, Türkiye's transactional positioning persists, but the democratic backsliding narrative increasingly constrains EU engagement and Western institutional cooperation.