Türkiye has obtained billions of dollars in external financing since the May elections, a top economy official said Monday, as the country embraced more conventional policies to fight stubborn inflation after a long-running easing trend.
A combined $10.4 billion (TL 281 billion) in financing from abroad has flown into Türkiye since June, Treasury and Finance Minister Mehmet Şimşek said. Out of this, the banking sector secured over $6.7 billion, the real sector attracted $3.26 billion and the non-banking financial sector accounted for $367 million.
"This is the clearest indication of confidence in the country’s economy," Şimşek told Anadolu Agency (AA) in New York, where he is accompanying President Recep Tayyip Erdoğan, who is set to address the United Nations General Assembly on Tuesday.
After his reelection in May, Erdoğan reshuffled his economy team and named two accomplished bankers, including Şimşek and Central Bank of the Republic of Türkiye (CBRT) Governor Hafize Gaye Erkan.
The first woman to hold that position, Erkan was previously co-chief executive of the now-failed San Francisco-based First Republic Bank.
Under Erkan, the central bank has roughly tripled its benchmark policy rate as it hiked it by 1,650 basis points to 25% and promised more tightening, given that inflation is forecast to rise in the coming months before an expected downward trend next year.
To contain price gains, the monetary authority is expected to deliver another hefty rate hike of up to 500 basis points when its policymakers meet on Thursday.
Erdoğan reiterates support
Erdoğan is known as a proponent of lower borrowing costs, but he last week expressed his strongest pledge of support yet for his new economic team’s policy overhaul. He said inflation, which shot back to nearly 60% in August, would fall to single digits with the support of tight monetary policy.
On Monday, Erdoğan reiterated his backing.
"Our economy team is now engaged in intense work" and "successfully maintaining the process of containing inflation by the end of this year, or the beginning of next year," Erdoğan said in New York.
International rating agencies Moody’s and Fitch have recently acknowledged the impact of the policy reversal, accompanied by a decline in Türkiye’s credit default swaps – a measure of protection against potential credit events, such as default.
Fitch revised the outlook on the nation’s long-term foreign-currency issuer default rating to "stable" from "negative" after two years. It affirmed its debt grade at "B," five notches below investment grade.
It said the revisal reflects a return to a more traditional and consistent policy mix aimed at mitigating short-term macro-financial stability risks and alleviating balance of payments pressures.
The CDS score, which stood at as high as 700 points before the May election, fell below 400 basis points following the policy pivot and unveiling of the country’s new three-year medium-term economic program.
Moody’s upgraded its growth forecast for the Turkish economy from 2.6% to 4.2% for this year and from 2% to 3% next year, noting that the right policy sets were in place.
‘Financing issue solved’
Şimşek, a former Merrill Lynch banker, said confidence in the country is gradually increasing thanks to what he said was a rational program carried out in economic policies.
Referring to the financing secured by banks over the past month, he said: "With the strengthening of confidence in the government, the problems encountered with foreign financing are also being solved."
VakıfBank, Yapı Kredi, Eximbank, Industrial Development Bank of Türkiye (TSKB), Denizbank and Işbank all attracted a high level of interest in their issuances in August and September, Şimşek said. The lenders secured a total of $2.05 billion in the last month alone, he added.
Şimşek cited what he said was a robust interest from a very wide geography, such as the U.K., the Middle East, Europe, the Americas and Asia-Pacific countries.
"Almost all leading economies have focused on Türkiye for investments," he said.
Şimşek also noted positive outcomes from a series of meetings in the Gulf region, spearheaded by Erdoğan’s trip to Saudi Arabia, the United Arab Emirates (UAE) and Qatar in mid-July.
"Türk Eximbank, under the coordination of the ITFC, the trade finance institution of the Islamic Development Bank and a participation of eight financial institutions from the Gulf region, secured $277 million of one-year term foreign resources to support Turkish exports," Şimşek said.
Highlighting the interest in the real sector, he said Arçelik, the home appliances arm of Türkiye’s biggest industrial conglomerate, Koç Holding, secured $400 million in financing. Among others, Rönesans Holding, one of Türkiye’s top conglomerates, agreed on a loan of 781 million euros (over $834 million) under the guarantee of the U.K. Export Finance in July, he added.
‘Price stability a must’
Şimşek emphasized the importance of price stability, which he said "is a must for lasting prosperity, high growth, high employment, and additional foreign resources."
"We set realistic targets to ensure price stability. We will redirect resources from consumption to exports and investment," he said.
The minister underscored that access to financing should be eased for competitiveness. "If we can permanently reduce inflation to single digits, our companies will have access to 5-10 years maturity resources from the world at reasonable costs."
"Then there will not be many countries in the world that can compete with Türkiye."
Stating that the medium-term program also gives confidence to international markets, Şimşek said the road map features three main components: fighting inflation, fiscal discipline and structural reforms. He cited external resources as the fourth element of the program.
Şimşek is scheduled to meet with bankers and investors in New York on Tuesday. He will speak at an investment conference co-hosted by Goldman Sachs Group Inc. and the Türkiye-U.S. Business Council.
Erdoğan is also set to meet with U.S. businesspeople. Ahead of the meeting, he spoke of the need to overcome differing points of view between Türkiye and the U.S. and focus on boosting bilateral trade volume, which totaled nearly $34 billion last year.
"There may always be differences of opinion in relations between states; this is normal," Erdoğan said during a dinner hosted by the Turkish American National Steering Committee. "However, we also know that there are more common denominators and that there are many windows of opportunity that will open in this regard."
After the U.S. trip, Şimşek is expected to travel to European economic powerhouses Germany and Britain and cities in Asia and the Middle East to meet with dozens of top chief executives.