1. Introduction While the Turkish economy has been struggling with macroeconomic challenges such as high inflation, exchange rate volatility, and current account deficits in recent years, the 2026-2028 Medium Term Program (MTP) announced last September offers a comprehensive policy set to address these issues. This text aims to perform a systematic analysis of the program’s objectives, tools, and potential effects by handling it within a political-economy framework. To this end, the program’s strengths and weaknesses, the opportunities and threats it creates for public financial management and the private sector, the internal contradictions identified in the program text, and finally, a specific evaluation regarding monetary policy will be presented.
2. General Framework of the Program It must be stated in advance that the difficulties of creating an economic program given Turkey’s economic and social conditions are immediately apparent. Likely due to these difficulties, it is observed that the program attempts to reconcile the interests and policy preferences of various social and class segments.
We observe that the MTP is built on three main axes: (1) Controlling inflation and ensuring price stability, (2) Maintaining fiscal discipline and strengthening public finances, (3) Establishing sustainable and high value-added growth through structural reforms focused on green and digital transformation.
Consistent with the Twelfth Development Plan, the program views the provision of macroeconomic stability as a precondition for long-term development, but it also attaches equal importance to structural transformation.
2.1. Strengths Comprehensive Structural Reform Vision: The program envisions concrete steps in areas such as high-tech and value-added transformation in industry, strengthening the R&D and innovation ecosystem, increasing the quality of human capital, and green/digital transformation. This can be evaluated as a positive approach aimed at increasing the competitiveness of the Turkish economy in the medium to long term. However, every transformation—that is, shedding the old and equipping oneself with the new—has a cost. It remains uncertain how this cost will be distributed among social segments and through which transmission mechanisms; in other words, who will bear this cost and to what extent.
Emphasis on Fiscal Discipline: Targets such as reducing the ratio of public deficits and debt stock to GDP, increasing efficiency in expenditures, and combating the informal economy are of vital importance for macroeconomic stability. There are two ways to achieve this goal. The first way is a technically easy option that yields results in a short time but has high social and political costs. The social cost is poverty; the political cost is losing power. This path involves reducing the borrowing requirement. To do this, either public spending must be reduced, tax revenues increased, or both done simultaneously. Considering that public expenditures constitute approximately 35% of the Turkish economy, this option carries the risk of deepening income inequality and poverty, especially if there is a cut in social spending. In a public revenue composition where indirect consumption taxes make up about 65% of total tax revenues, increasing tax revenues carries the risk of directly reducing household consumption. However, this situation can be mitigated through selective taxation policies. While tax rates on essential consumer goods are kept constant, taxes on luxury goods and services and wealth components can be increased. Another way to increase tax revenues is to expand the tax base. Combating the informal economy is one of the most effective tools for expanding the tax base. The alternative to reducing public spending is to increase spending efficiency. Increasing efficiency and productivity in public expenditures can facilitate the achievement of fiscal discipline targets. The most critical threat to fiscal discipline is the aging population. An aging population means both a decrease in the productive population and an increase in the population in need of social care and assistance. This situation may create pressure on public finances through social assistance programs and social expenditures.
2.2. Weaknesses Uncertainties Regarding the Growth-Inflation Balance: The program forecasts growth of 3.8%, 4.3%, and 5.0% for the 2026-2028 period, respectively. Inflation is targeted to be reduced to 16% by the end of 2026 and 8% by the end of 2028. These targets envisage a growth path above potential growth under tight monetary and fiscal policies, which may make it difficult to realize either the inflation or the growth targets.
External Finance Dependence and Current Account Deficit: Although the goal is to reduce the ratio of the current account deficit to GDP to 1.0% in 2028, a clear strategy for financing this ratio is not presented. The Foreign Direct Investment (FDI) target is not distinct. On the other hand, foreign capital does not always bring economic, social, and political risks. However, foreign capital can leave a country much faster than it arrived. As far as can be understood from the MTP, dependence on external resource inflows continues. The permanent way to reduce the need for foreign capital is to increase production and savings levels. One of the sub-conditions for this is to increase exports by reducing imports.
Concerns Regarding Implementation and Coordination Capacity: The program contains numerous reforms and policy measures. The success of the program depends on these measures being effectively coordinated and implemented across different public institutions and social partners. The presidential government system is a significant opportunity to effectively ensure the needed coordination.
External Vulnerabilities: The program remains insufficient in proposing concrete policies to increase economic resilience against external shocks such as global trade wars, geopolitical tensions, and volatility in commodity prices.
3. Opportunities and Threats for the Private Sector The clearest opportunity in the MTP is in the area of Green and Digital Transformation. It is clear that YEKA (Renewable Energy Resource Areas) projects, energy efficiency, digitalization incentives, and R&D support will create new investment and business areas for the private sector. However, there are two important fronts that need to be fortified at this point. The first is the SME front. Opening SMEs to international markets should be facilitated through export supports, market diversification, and export financing supports. The second is the finance front. The private sector’s access to finance should be improved through financial deepening, deepening of money and capital markets, and the development of alternative financing sources, especially Islamic finance instruments. The critical element here is not providing cheap and abundant finance to everyone, but financing economic activities and the right companies that support the medium-term plan. In other words, as mentioned in the MTP, supporting loans aimed at increasing investment, employment, production, and exports stands before us as perhaps a key practice that could be the solution to all problems. Selective credit policies are the most effective policy tool to support inflation targeting while alleviating the negative effects of a high general interest rate environment.
Tight Monetary Policy: It is clear that the tight monetary policy to be implemented within the scope of combating inflation will negatively affect private sector investments by increasing credit costs. However, cheap financing solutions supporting exports must be commissioned. Thus, the effects of the slowdown in domestic demand caused by high financing costs can be minimized.
4. Contradictions and Inconsistencies in the Program When the MTP text is examined, internal contradictions and inconsistencies in some areas draw attention:
Contradiction 1: Tension Between Growth Targets and Inflation Targets: While the program envisages 5% growth in 2028, it targets reducing inflation to 8% in the same period. Growth hovering above potential growth usually increases inflationary pressures. Trying to achieve this growth by applying tight monetary and fiscal policies means pursuing two contradictory goals simultaneously. This situation may lead to either abandoning growth targets or failing to meet inflation targets.
Contradiction 2: Balance Between Fiscal Discipline and Public Investment Expenditures: While the program commits to reducing the public deficit, it also speaks of activating public infrastructure investments such as railway connections, disaster-resistant construction, and green transformation. There is a tension regarding resource allocation between these two goals. Increasing public investments may make fiscal discipline targets difficult in the short term.
Contradiction 3: Floating Exchange Rate Regime vs. Reserve Accumulation and Export Promotion: The program states that it will maintain the floating exchange rate regime. However, it also aims to increase reserve accumulation and encourage exports. In a floating rate regime, the Central Bank’s intervention in the market to accumulate foreign exchange reserves can create artificial pressure on the exchange rate, which may negatively affect the competitiveness of exporters. While a competitive exchange rate is necessary to encourage exports, a strong TL may be preferred for reserve accumulation.
Contradiction 4: Limiting Credit Growth vs. Supporting Investment and Export Credits: While the program envisages limiting credit growth within the scope of combating inflation, on the other hand, it mentions supporting loans aimed at increasing investment, employment, production, and exports. There is an operational contradiction between these two policies. It must be clearly stated that it is not clear in the program how banks will make this distinction in credit allocation and how the audit mechanisms for this will work. In fact, the traditional banking system does not have the mechanisms or operational capacity to operate this policy. On the other hand, Islamic finance institutions already possess mechanisms to conduct appropriateness audits in the utilization of selective credits. This is because participation finance institutions perform a similar appropriateness audit in every financing transaction to prevent acts and transactions contrary to Islamic finance standards.
5. Predictions Regarding Monetary Policy Although there is no direct reference to interest rate policy in the MTP, a framework is drawn indirectly with expressions such as “tight monetary policy,” “inflation targeting,” and “floating exchange rate regime.” It should be stated that emphasizing commitment to inflation targeting and the floating rate regime is positive for policy predictability. The statement that monetary policy will be carried out in coordination with fiscal and income policies points to a holistic approach in the fight against inflation. Increasing the share of Turkish Lira deposits in total deposits and extending their maturity is an important macro-prudential measure in terms of reducing dollarization and strengthening the monetary policy transmission mechanism, but it is clear that it cannot go beyond a good-intentioned wish under current conditions. The program does not directly include the policy rate, which creates uncertainty regarding the public sector’s attitude towards “interest rates,” which has been made the main tool of the fight against inflation. It is unclear whether the expression “tight monetary policy” included in the program corresponds to real positive interest rates. On the other hand, the realism of inflation targets is also a matter of debate. The target of reducing CPI to 16% by the end of 2026 and 8% by the end of 2028 seems quite ambitious given current inflation dynamics, especially considering service and food inflation and global inflationary pressures. Achieving these targets may require keeping the policy rate at high levels for a long time. The contradiction mentioned above also manifests itself specifically in monetary policy. A 5% growth target may create pressure for early interest rate cuts, which will make it difficult to anchor inflation expectations.
6. Conclusion and Policy Recommendations The 2026-2028 Medium Term Program offers a comprehensive reform package for the structural problems of the Turkish economy and aims to re-establish macroeconomic stability. Although the program has a strong vision and a comprehensive policy set, it harbors significant risks and uncertainties, especially regarding the growth-inflation balance, implementation capacity, and some internal contradictions. The following policy recommendations can be considered to increase the program’s chance of success:
Priorities Must Be Clarified: Fighting inflation should be placed ahead of all other macroeconomic goals, and growth targets should be aligned with this priority. Compromising on growth in the short term may allow for the construction of a more solid growth path in the medium term.
Policy Consistency Must Be Ensured: Coordination between monetary, fiscal, and income policies must be strengthened, and internal contradictions identified in the program must be resolved.
Implementation Mechanisms Must Be Strengthened: Institutional capacity, coordination mechanisms, and monitoring-evaluation systems necessary for the implementation of reforms must be established.
Social Dialogue Must Be Expanded: An effective dialogue process must be conducted with the business world, unions, and non-governmental organizations to ensure the program finds social support and to manage potential social costs.
Resilience Against External Shocks Must Be Increased: A stronger foreign policy approach should be adopted against global uncertainties, trade agreements should be diversified, and energy supply security strategies should be reviewed.
In conclusion, the 2026-2028 MTP constitutes an important turning point for the Turkish economy. The realization of the program’s promises will depend on the determination, technical capacity, and ability of policymakers to ensure social consensus.