The state's two balance sheets: The visible budget, off-budget risks, and the burden awaiting the Treasury

Real risks in public finance are not always visible in budget tables. Debts sometimes accumulate off-balance sheet, liabilities are distributed across the accounts of different institutions, and costs are deferred to the future. For this reason, looking only at the budget deficit or the official debt stock is insufficient when evaluating a country's fiscal situation. The real issue is how much of the liabilities undertaken on behalf of the state are in areas that the public can see, audit, and question. The off-budget fiscal structure that has grown in Turkey in recent years brings the invisible face of public finance and the risks transferred to the future back onto the agenda.

However, in recent years, public finance in Turkey has been transforming into an increasingly fragmented, complex, and difficult-to-track structure. Due to transactions carried out through public banks, State Economic Enterprises (SEEs), off-budget funds, Treasury guarantees, Public-Private Partnership (PPP) projects, and the Turkey Wealth Fund (TWF), a significant portion of public finance is moving outside the central government budget. The resulting picture is not just a fiscal issue; it is also a problem of transparency, accountability, and democratic oversight. Today, we must talk not only about the budget deficit but also about the state's ever-growing shadow balance sheet.

FISCAL REALITY BEYOND THE BUDGET: The Gap Between the Visible Budget and Real Fiscal Risk

By the end of 2025, the EU-defined general government debt stock reached 15 trillion 14 billion TL, and the net public debt stock reached 8 trillion 564 billion TL. Despite this, official indicators show that the ratio of public debt stock to national income remains at lower levels compared to many developed countries.

On the other hand, the 2026 Central Government Budget Realizations and Expectations Report published by the Presidency's Strategy and Budget Directorate indicates that the deterioration in budget balances continues. According to the report, expenditures, which were projected at 18.9 trillion lira at the end of the year, are expected to reach 19.6 trillion lira, while revenues, estimated at 16.2 trillion lira, are projected to reach 17.1 trillion lira by the end of 2026. Thus, while the central government budget deficit is expected to reach 2 trillion 508 billion TL, interest expenses are estimated to rise to the 2 trillion 824 billion TL level.

At first glance, this picture might create the impression that public finance remains within manageable limits. However, the real issue in public finance is not the size of the debt stock, but how much of the fiscal liabilities are visible. This is because the central government budget is not a comprehensive balance sheet reflecting all fiscal risks undertaken on behalf of the state. When the tasks undertaken by public banks, the financing burdens of SEEs, Treasury guarantees, commitments arising from PPP projects, and off-budget funds are taken into account, a much broader fiscal picture emerges.

In other words, there is a growing gap today between the budget deficit visible in public finance and the total fiscal risk undertaken by the public sector. While official figures reveal the visible face of the budget, significant amounts of liabilities are accumulating on the invisible side of the fiscal system.

This area constitutes the boundaries of the “shadow public finance” that is increasingly discussed in the literature. The fact that a significant portion of fiscal risks are shaped outside the budget makes it difficult to assess the true state of public finance and brings new questions regarding transparency and accountability.

DUTY LOSSES: Is History Repeating Itself?

Turkey has previously experienced the devastating effects of duty losses on public finance by paying heavy prices. Especially in the 1990s and before the 2001 crisis, the duty losses undertaken by public banks and some state economic enterprises were kept off-budget for a long time, but were eventually assumed by the Treasury and turned into public debt. The sudden collapse of invisible liabilities onto public finance was one of the most significant fiscal vulnerabilities of that period.

Although the methods applied in the intervening years seem to have changed, the understanding of deferring costs off-budget has not completely disappeared. Indeed, duty losses, renamed as “assignment expenses” in the budget in 2021, became one of the most notable expenditure items of public finance in the first six months of 2026. Payments made for this purpose in the January-June period reached 1 trillion 32 billion TL; this amount corresponds to approximately 70 percent of the 1.4 trillion TL in interest expenses realized in the same period. This magnitude clearly shows that duty losses are no longer a secondary budget item.

The largest portion of duty losses consists of transfers made to the Social Security Institution (SGK). While approximately 701 billion TL in duty losses were paid to the SGK in the first six months of the year, duty loss payments made to SEEs reached 181.9 billion TL. In this context, Electricity Generation Co. (EÜAŞ) ranked first with 94.5 billion TL, while 83 billion TL was transferred to BOTAŞ and 4.4 billion TL to the Turkish Coal Enterprises as duty losses.

Similarly, payments made to public banks have reached remarkable levels. In the same period, 101 billion TL was paid to Ziraat Bank and 33.4 billion TL to Halkbank as duty losses. Thus, the total duty loss transfer made to public banks approached 140 billion TL.

Undoubtedly, keeping energy prices under control, supporting agricultural production, encouraging exports, or implementing social policies can be among the legitimate choices of public authorities. However, the fundamental issue here is not whether the cost of these policies disappears, but where and how they are accounted for. The economic reality does not change: Even if the cost does not appear in the budget, it accumulates on the public sector. The burdens accumulating on the balance sheets of public institutions, SEEs, or public banks sooner or later turn into fiscal liabilities that the Treasury has to assume.

This is precisely the most significant risk that duty losses pose for public finance. In the initial stage, they are invisible and can make budget indicators appear more positive than they are; however, over time, they reappear as public debt and budget expenditures. In other words, the costs that are invisible today have the potential to become tomorrow's budget burden.

TURKEY WEALTH FUND: A Fund or a Parallel Treasury?

One of the most notable structures among the areas of public finance that spill over outside the budget is undoubtedly the Turkey Wealth Fund (TWF). Due to its growing economic weight in recent years, the strategic public institutions it houses, and its financing capacity, the TWF is at the center of public finance debates.

Today, strategic institutions of the Turkish economy such as Turkish Airlines, Ziraat Bank, Halkbank, BOTAŞ, TPAO, Türksat, PTT, and ÇAYKUR are under the umbrella of the TWF. The fund, which operates in the finance, energy, transport, communication, mining, agriculture, and real estate sectors, and houses 36 companies from 7 different sectors, 2 licenses, and various real estate assets, manages a wider economic area than many public institutions with its 360 billion dollar asset size.

However, the point to be noted here is not the size of the fund, but the fiscal function it undertakes. A significant portion of successful sovereign wealth funds in the world were established to evaluate the wealth accumulated by economies that provide oil revenues, natural resource surpluses, or continuous foreign trade surpluses. The funds in Norway, Singapore, and some Gulf countries are the best-known examples of this.

The Turkey Wealth Fund, on the other hand, is built on a different model. The main source of the fund is not newly created fiscal surpluses, but the transfer of existing public assets. For this reason, the function of the TWF has gone beyond a classic investment fund over time and has turned into a structure that can provide financing on behalf of the public and undertake significant fiscal risks. At this very point, a critical question arises: Is the TWF a financing tool that eases the burden on the Treasury, or is it a de facto public financing mechanism operating outside the budget system?

The answer to this question depends more on the operation and transparency level of the fund than on its existence. Because the issue is not that the TWF has been established; it is to what extent the borrowings, guarantees, and fiscal risks undertaken by the fund can be tracked within the general view of public finance. Therefore, the subject to be discussed is not the existence of the TWF, but to what extent the risks it undertakes on behalf of the public are visible and how much of them are open to public scrutiny. Because in modern public finance, transparency is measured not only by the figures appearing in the budget, but also by the ability to explain the liabilities carried outside the budget.

TREASURY GUARANTEES AND INVISIBLE DEBTS: Today's Guarantees, Tomorrow's Debts

Not all risks in public finance appear in the debt stock. While some liabilities do not constitute a direct debt for today, they can impose significant costs on the public when certain conditions are met. For this reason, modern public finance analyses focus not only on existing debts but also on liabilities that have the potential to turn into debt in the future.

As of December 31, 2025, the Treasury-guaranteed external debt stock stood at 19.1 billion dollars. This size maintained approximately the same level in the first quarter of 2026. These data show that the guarantees given directly on behalf of the public have reached a significant magnitude.

However, what is truly remarkable are the liabilities that remain outside the scope of official debt statistics. Because the risks that could affect the future of public finance are not limited to debts directly guaranteed by the Treasury. Revenue and demand guarantees given within the scope of Public-Private Partnership projects, the future capital needs of public banks, the financing requirements of SEEs, liabilities undertaken in foreign currency, and the fiscal risks carried by various public institutions also constitute the invisible area of public finance.

In international public finance literature, such liabilities are called “contingent liabilities.” These liabilities may not be considered direct public debt for today. However, they have the potential to create a burden on the budget and the Treasury if certain economic or financial conditions are met. For this reason, contingent liabilities are evaluated as the invisible risk map of public finance.

Indeed, one of the main causes of fiscal crises in many countries around the world in the past has been such liabilities that do not appear in official debt stocks but turn into public debt during crisis periods. Banking system bailout packages, the debts of public companies, guarantee payments, and various fiscal commitments have been able to significantly increase the public debt stock in many countries overnight.

A similar reality applies to Turkey. In the event of a slowdown in economic growth, an increase in exchange rate volatility, or the failure of some public-supported projects to generate expected revenues, it is possible for some liabilities that appear off-budget today to turn into direct Treasury liabilities tomorrow. Therefore, the true measure of fiscal discipline is not just keeping the existing debt stock under control. It is also to transparently monitor, report, and manage contingent liabilities that could create a burden on the public in the future.

PPP PROJECTS: Bridges, Hospitals, and the Bill Left to the Future

Many large investments made in Turkey's transport and health infrastructure over the last twenty years have been realized through the Public-Private Partnership (PPP) model. Projects such as city hospitals, highways, bridges, and airports have made significant contributions to the completion of large-scale investments that public resources would struggle to meet on their own in a shorter time. Viewed from this perspective, the PPP model can be evaluated as an alternative financing method in the provision of public services. However, in terms of public finance, the issue is not just the realization of investments. What is truly important is what fiscal liabilities these investments create and the long-term effects of these liabilities on public finance.

The main feature of PPP projects is that the investment cost is not directly loaded onto the budget in the initial stage. Instead, the public undertakes future-oriented fiscal commitments through revenue, passenger, vehicle passage, or service usage guarantees given for certain periods. In accounting records, not all of these commitments may appear as public debt. For this reason, at first glance, the burden on the budget may be perceived as limited. However, when evaluated from an economic perspective, the situation is different.

Because every project for which a guarantee is given means potential payments that may be made from the budget in the future. In cases where the expected demand is not met, the difference is covered by the public, thus some of the risks initially thought to be undertaken by the private sector return to the public sector.

For this reason, PPP projects are not only investments of today, but also fiscal commitments made to the budgets of the future. In other words, a portion of the cost of the infrastructure used today is financed by the tax revenues of the future. This situation cannot be evaluated as a negative choice on its own. However, the magnitude, maturity, and possible budget effects of these liabilities must be clearly known by the public.

Indeed, international fiscal transparency standards also recommend that not only the investment amounts of PPP projects, but also guarantee liabilities and future payment projections be announced regularly. Because in public finance, risk is not limited to the amounts paid today. Liabilities likely to be paid in the future are also an inseparable part of fiscal sustainability.

THE SILENT LIQUIDATION OF THE PRINCIPLE OF BUDGETARY UNITY: From Budgetary Unity to Shadow Finance

Budgetary unity, one of the fundamental principles of public finance, stipulates that all revenues, expenditures, and liabilities undertaken on behalf of the state be monitored within a single fiscal framework. This principle is not just a technical accounting choice, but also one of the cornerstones of democratic oversight and fiscal transparency. Because the citizen's ability to see how public resources are used, the parliament's effective use of its budget right, and the ability of audit institutions to evaluate public finance holistically are only possible if fiscal transactions can be monitored within the same system as much as possible.

In Turkey, significant steps were taken in the field of budgetary unity, fiscal transparency, and accountability with the Public Financial Management and Control Law No. 5018, which came into force especially at the beginning of the 2000s. The goal was to bring all elements of public finance together within a common fiscal management understanding and to make the use of public resources more visible.

However, the picture that has emerged in recent years indicates that this understanding is gradually eroding. Fiscal transactions carried out through public banks, SEEs, the Turkey Wealth Fund, off-budget funds, Treasury guarantees, and Public-Private Partnership projects lead to a significant portion of the liabilities undertaken on behalf of the public being shaped outside the central government budget.

As a result, the distance between budget figures and the public's real fiscal liabilities is widening. The effects of this situation are not limited to fiscal indicators. It also has direct consequences on democratic oversight mechanisms.

Because as the fiscal liabilities formed outside the budget increase, the scope of the Turkish Grand National Assembly's (TBMM) budget right narrows, the effectiveness of the fiscal audit conducted on behalf of the nation weakens, and it becomes difficult for the public to evaluate the state's true fiscal situation.

Yet, fiscal transparency is not just the announcement of money spent. It is also making visible the resources likely to be spent in the future, the risks undertaken, and the commitments made on behalf of the public. Where transparency decreases, uncertainty increases. Where uncertainty increases, risk perception rises. Where risk perception rises, borrowing costs increase, investor confidence weakens, and economic vulnerabilities deepen. In the end, the resulting cost is loaded onto the shoulders of the entire society, not just public institutions.

SOLUTION: Disclosing the State's Consolidated Balance Sheet

The problem Turkey is facing is not the diversification of the tools used in public finance; it is the inability to monitor the fiscal risks created by these tools within a holistic framework. Public banks, SEEs, the Turkey Wealth Fund, Treasury guarantees, and PPP projects can be seen as structures serving specific purposes when evaluated individually. However, when all of these structures are not considered together, it is not possible to healthily evaluate the state's real fiscal liabilities and risks regarding the future.

For this reason, what Turkey needs is not new funds, new guarantees, or new off-budget mechanisms; it is a comprehensive fiscal transparency reform that will make all of public finance visible.

The approach that is increasingly coming to the fore in developed countries and the recommendations of international organizations is that public finance should be evaluated not only through budget realizations, but through consolidated financial tables covering all of the state's assets and liabilities. Because in modern public finance, what is important is not just the annual income-expenditure balance, but the state's total fiscal position.

In Turkey, the preparation of a “Consolidated Public Finance Balance Sheet” that goes beyond the central government budget and covers the entire public sector has now become a necessity, not a choice. In this context; the central government budget, State Economic Enterprises, public banks, the Turkey Wealth Fund and its affiliated companies, Treasury guarantees, liabilities arising from Public-Private Partnership projects, and other contingent liabilities should be evaluated within a single fiscal framework and shared with the public regularly.

In addition, the borrowings, collateral transactions, and fiscal risks undertaken by the Turkey Wealth Fund should be reported in accordance with international sovereign wealth fund standards. The total guarantee burden, contract durations, and future payment schedules of PPP projects should be published regularly. The fiscal effects of the tasks undertaken by public banks should be explained together with their possible results on the budget.

Similarly, regular risk reports should be prepared for contingent liabilities that constitute the invisible area of public finance, and the public should be informed about this issue. The purpose of transparency is not just to show the current picture, but also to make visible the fiscal risks that may arise in the future. More importantly, this process should be supported by new audit mechanisms that will strengthen the TBMM's budget right. Because every liability undertaken on behalf of the public, regardless of which institution it is carried out through, is ultimately related to the citizen's taxes.

CONCLUSION: Invisible Debt is Also Debt

Turkey's public finance has been undergoing a significant transformation in recent years. The most prominent feature of this transformation is that an increasingly larger portion of fiscal liabilities is being moved outside the central government budget.

When duty losses, fiscal tasks undertaken by public banks, financing needs of SEEs, activities of the Turkey Wealth Fund, Treasury guarantees, and liabilities arising from Public-Private Partnership projects are evaluated together, it is seen that a much wider fiscal area has been formed beyond the official budget figures.

Of course, the subject discussed here is not the existence of these tools. Public banks can support economic stability, SEEs can operate in strategic sectors, PPP projects can accelerate infrastructure investments, and the Turkey Wealth Fund can contribute to specific development goals. The problem is to what extent the fiscal risks these structures undertake on behalf of the public are visible and how open they are to public scrutiny.

Because fiscal discipline cannot be achieved only by keeping the budget deficit under control. Real fiscal discipline is possible by fully revealing all liabilities undertaken on behalf of the state. Many liabilities that appear off-budget today have the potential to appear as expenditures in tomorrow's budget. Risks carried on the balance sheets of different institutions today can turn into the common liability of the Treasury and therefore the society tomorrow. The history of public finance is full of countless examples of invisible liabilities turning into visible debts over time.

For this reason, the real question is not what the official budget deficit is; it is how much of the total fiscal risk undertaken on behalf of the state can be seen. Where there is no transparency, uncertainty grows. Where uncertainty increases, trust decreases. Where trust decreases, the cost rises.

In the end, this cost appears to the citizen as higher taxes, more borrowing, more expensive public financing, or more limited public services. Turkey has two different paths ahead of it today.

The first path is the continuation of the current structure, where fiscal liabilities continue to be distributed within different institutions and mechanisms, and public finance becomes increasingly complex and difficult to track. The second path is the adoption of a reform understanding that places the principles of budgetary unity, fiscal transparency, and accountability back at the center of public finance; and makes all liabilities undertaken on behalf of the state visible within a single fiscal framework.

The choice is not just a technical fiscal policy choice. This choice is also directly related to the citizen's budget right, the trust in public administration, and the accountability capacity of democracy. Because the fundamental truth that does not change in public finance is this: Invisible debt is also debt. And invisible risks do not disappear; they are only deferred to the future.

What Turkey needs today is not new fiscal smoke screens; it is a stronger understanding of fiscal transparency that will reveal the state's true balance sheet with all its clarity.