Mahfi Eğilmez: Time for an urgent revision for economic management

New tensions emerging between the US-Israel and Iran, along with the rise in energy prices, have brought the need to reconsider current projections regarding the Turkish economy to the agenda.

Mahfi Eğilmez suggests updating calculations for many indicators, ranging from oil prices to risk premiums, and from inflation to growth rates.

In an analysis shared on his blog, Eğilmez included the following remarks: "Economic management sometimes wants to look at the map of sunny days during a storm. However, when the wind changes direction, old calculations no longer work. As oil prices hit the ceiling, interest rates and risk premiums are rising, and the budget balance and external balance are becoming fragile. The initially projected program has lost its validity in the face of the weight of reality. Now is not the time to defend old plans, but the time to make realistic calculations again."

THE RISE IN OIL AND ENERGY COSTS

In Eğilmez's assessment, it is stated that serious deviations have occurred in the main indicators of the economy, given the current situation where oil prices are far above the targeted levels. While an average of 65 dollars was assumed for 2026 in the Medium-Term Program, it is emphasized that the current rise of prices to the 110-dollar level will have significant effects. It is pointed out that every 10-dollar increase in oil prices increases the current account deficit by 3.5–4 billion dollars and inflation by 1–1.5 points.

On the other hand, the upward trend in Turkey's risk premium and the rise in US bond yields are significantly increasing the country's external borrowing costs. Today, these rates have exceeded 7 percent, making it difficult for not only the public sector but also the private sector to access financing.

INFLATION AND BUDGET OUTLOOK

Arguing that it is no longer possible to keep inflation expectations in the 16-21 percent range at the end of the year, Eğilmez stated that the forecasts should be adjusted to the 25 percent level. He expressed that the Central Bank should also review its monetary policy in parallel with this. It is reported that the real borrowing cost is also increasing along with the upward change in interest rates.

While an improvement was observed in the budget in the first two months of this year, it was warned that this is temporary and that the budget balance could deteriorate again as the effect of advance corporate tax collection wears off. The increase in oil and interest costs, coupled with the slowdown in economic growth, is expected to deepen the budget deficit by the end of the year.

On the current account side, it is observed that while exports remain weak and imports are rising, the decline in foreign direct investment continues; short-term and volatile capital inflows are coming to the fore. It was underlined that the increase in costs for energy imports could double the current account deficit.

The downward trend in Central Bank reserves is linked to both the difficulty of external financing and the increase in domestic demand for foreign currency.

Economic growth is expected to be pulled down by industrial production, capacity utilization, losses in agriculture and livestock, and the impact of interest rate hikes on consumption. It seems difficult to reach the 3.8 percent growth target in the Medium-Term Program (OVP).

Based on the view that "not changing the program when reality has changed is no longer a choice, but a mistake," Turkey's economic management is expected to create economic targets suitable for the realities of the new era with an urgent revision.