TÜRKİYE’S ECONOMIC CHALLENGES AND THE MEDIUM-TERM PROGRAMME FOR 2026–2028
Dr. Gülsüm Akbulut
Founder and CEO, Ankara Global Advisory Group
21 September 2025
Introduction
The Medium-Term Program (MTP) for 2026–2028 sets Türkiye’s economic course for the next three years. It was published in the Official Gazette on September 7, 2025 and announced with Vice President Cevdet Yılmaz, Minister of Treasury and Finance Mehmet Şimşek and Governor of the Central Bank of Türkiye, Fatih Karahan. It sets out Türkiye’s policy roadmap aimed at lowering inflation, promoting stable growth and employment, and reducing external imbalances with a broader vision of structural reforms and fiscal sustainability.
The program builds on the policy transition that began after the May 2023 elections with a new framework that prioritizes the fight against inflation. The MTP reflects a disinflation path with gradually increasing growth rates. Nevertheless, challenges remain, particularly in maintaining growth while containing inflation and managing the social costs of adjustment with a tight monetary policy. Domestic political uncertainties and external risks arising from protectionist measures add to the challenges of achieving the planned inflation and growth rates.
Key Economic Targets and Challenges
The MTP assumes that the Turkish economy will continue its moderate growth trajectory. Real GDP, which grew by 3.3 percent in 2024, is expected to grow at the same rate in 2025 and at a similar rate of 3.8 percent in 2026. The MTP foresees a downward revision of Türkiye’s growth path compared to the previous year's MTP. Over the three-year horizon, growth forecasts have been revised downwards by more than two percentage points compared to previous assumptions.
The employment trend is slightly more favorable over the following three years. The government assumes that 2.5 million additional jobs will be created by 2028 and that the unemployment rate will fall below 8 percent for the first time in Türkiye’s modern economic history.
The new program aims to restore productivity-led growth, a strategy that allows disinflation and growth to coexist. According to Minister Şimşek, more than half of the recent growth is already due to productivity. This suggests that Türkiye will not have to choose between fighting inflation and economic growth if it continues to improve its efficiency. As part of the planned structural reforms, potential growth is estimated to increase by around 0.5 percentage points during the program period.
The inflation forecasts in the MTP are in line with those of the Central Bank. Inflation is set at 28.5 percent for 2025 and 16 percent for 2026. The MTP sets a single-digit inflation target for 2027 and 2028. These targets are among the central pillars of the ongoing disinflation program, which was launched with an inflation rate of 65 particularly after the 2023 elections. Achieving these targets will require a continued tight monetary policy and careful management of inflation expectations, as well as prudent fiscal policy.
On the fiscal side, the government faces the dual challenge of continuing to invest in post-earthquake reconstruction and reducing the budget deficit at the same time. The central government's deficit, which had risen to 5.2 percent of GDP in 2023, fell to 4.7 percent in 2024 and is expected to fall to 3.6 percent of GDP in 2025. In 2025, TL 489 billion is expected to be spent on the reconstruction of the areas damaged by the earthquakes. Accordingly, the budget deficit excluding earthquake-related expenditures is estimated to reach 2.8 percent of GDP by the end of 2025. The central government deficit is expected to fall below 3 percent in 2028. The MTP envisages a stable debt to GDP ratio for the coming years. Achieving these targets will require strict adherence to fiscal discipline, including extended tax audits, reduced tax exemptions and continued restraint in public spending.
The program maintains an optimistic stance on the balance of payments and assumes an improvement in external financing conditions and trade performance. The foreign trade balance has improved significantly compared to the situation in 2022 and 2023. The current account deficit is expected to be 1.4 percent of GDP in 2025 and 1.0 percent in 2028. Expected falls in oil prices will help a lower trade and current account deficit. Nevertheless, Türkiye’s export performance will continue to be impacted by weak demand in the European Union and the real value of the Turkish lira affected by the interest rate policies of the Central Bank.
Stabilizing the exchange rate remains one of the government’s top priorities in reducing inflation. The central bank has therefore focused on preserving the value of the Turkish lira and preventing further depreciation. As a result, the lira has appreciated in real terms over the last three years. However, this overvaluation has contributed to an increase in imports, while export growth has remained relatively subdued. It is becoming increasingly important to address the concerns of exporters, as an overvalued currency undermines competitiveness in international markets. Against this backdrop, the MTP assumes that the exchange rate will move in line with inflation differentials between Türkiye and its major trading partners, with no significant depreciation or appreciation expected in the next three years.
The MTP 2026–2028 emphasizes structural reforms as the engine of medium-term growth. The focus is on increasing productivity through technological innovation, investing in the green and digital transformation, strengthening human capital through education reforms and improving the skills of the workforce. Specific initiatives include expanding renewable energy, digital infrastructure, 5G, AI and promoting export diversification. The government has also committed to improving the investment climate through regulatory reforms and improved public financial management to make public spending efficient and tackle informal economic practices. Post-earthquake reconstruction continues to play a role in supporting the construction sector, while services, particularly tourism and logistics, continue to play a central role in economic activity. Industrial recovery is expected to accelerate, but much depends on external demand, global trade conditions and domestic credit dynamics.
The program recognizes that significant risks persist. Globally, rising trade protectionism, escalating tensions between the United States and China, and the uncertain course of monetary policy in advanced economies continue to weigh on the outlook. Domestically, climate-related shocks to food production, wage adjustment pressures, and uneven growth across sectors present major challenges. In addition, mounting political tensions among parties have jeopardized the consistent implementation of the economic program by amplifying uncertainty. Ensuring political stability is therefore of paramount importance to meeting the program’s economic targets.
Conclusion
The Medium-Term Program 2026–2028 represents a continuation of the disinflation-oriented policy mix that has been in place since 2023. It reflects the progress made in stabilizing the economy, reducing vulnerabilities and restoring credibility. However, success depends on the government’s ability to maintain close coordination between monetary and fiscal policy, implement effective social measures to tackle inequality and push ahead with structural reforms to boost productivity and competitiveness.
If these conditions are met, Türkiye could achieve single-digit inflation, a sustainable budget balance and moderate and stable growth by 2028. However, if this delicate balance cannot be maintained, there is a risk that both economic stability and social cohesion will be undermined.
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