The risk of early elections in 2022 rises slightly

Despite strong nominal growth plans for public expenditures in Turkey, in some sectors, MNCs will face negative real spending in TRY terms, and in all sectors, negative real spending in US$ terms for 2022. Clearly the Turkish government will try to increase spending as much as possible, but high inflation and weakened FX will limit the margin and even total revenue in US$ terms that MNCs selling to the public sector can generate in 2022. Companies should anticipate pauses and delays in decision making if early elections are announced. Firms can maintain high commercial performance by helping the government’s goals of enhancing technology use, creating efficiencies, expanding healthcare services, and growing local manufacturing and employment levels.

Public investment program for 22


Turkey increased its 2022 budget spending by 30% relative to the 2021 budget. Employee compensation will grow at a similar rate, capital expenditures around 27%, and goods and services procurement by nearly 44%

The 2022 investment program envisions keeping the resources for housing and tourism flat, and growing agriculture, manufacturing, healthcare, and energy investments near and above inflation rates.

  • Pension rate increases were also announced: 30% for public sector retirees, and 24% for private sector pensioners. The minimum wage also increased by 50%.
  • While the government was drafting a high expenditure 2022 budget, its borrowing cost has been rising. The two-year bond rate for the government reached around 25% in mid-January, while the central bank’s interest rate has been dropping, to 14%.
  • On the monetary side, the government announced a new FX Protected Deposit Scheme at the end of 2021, providing fiscal guarantees for certain types of both individual and company accounts in Turkish lira, to pay additional income if interest earnings are less than that of FX volatility. On January 16, these accounts were worth over TRY 131 billion.

Our View

The government’s budget deficit as a share of GDP is coming under pressure in 2022. The GDP will grow at a slower rate in 2022, while spending will increase, but tax revenues are likely to be strained due to easing economic activity. Moreover, the government will continue to face high borrowing costs and a potential additional financial burden materializing unexpectedly in the case of extreme lira volatility. Strong public sector attempts to fuel the economy and heightened politically tense rhetoric, as well as intensification of activity in the lawsuit against the pro-Kurdish opposition party Halklarin Demokratik Partisi (HDP), highlight a slight risk of early elections in 2022.

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