Ministry of Treasury and Finance statement on 'interest payments': It is a natural result for payments to appear temporarily high

The Ministry of Treasury and Finance has issued a statement regarding public evaluations concerning interest payments for the January 2026 period.

The statement read: "Following recent public evaluations regarding interest payments for the January 2026 period, the following explanation has become necessary. The high interest payment realized in January does not stem from a sudden increase in borrowing costs or interest rate hikes during the program period.

Fifty-three percent of the interest payment made in January consists of the inflation adjustment paid at maturity for government domestic debt securities (DİBS) indexed to the CPI, which were first issued 10 years ago. The characteristic of CPI-indexed securities is that coupon rates are low, but the inflation rate realized over the years is added to the principal. The accumulated inflation difference is paid in a lump sum at the maturity date. Therefore, it is a natural result for payments related to such securities maturing during periods of high inflation to appear temporarily high," the statement said.

Noting that a temporary increase in interest payments on CPI-indexed debt instruments has been observed due to the inflationary environment of recent years, the statement added:

"Therefore, the increase in January does not point to a sudden rise in interest rates in the current period, but rather to the reflection of past inflation dynamics on the budget through the maturity structure. Due to the high inflation environment experienced in recent years, a temporary increase has been observed in interest payments on CPI-indexed debt instruments. However, this increase does not stem from a structural change in the interest burden, but from the technical and accounting reflection of inflation accumulated in the past period. With the gains in the disinflation process becoming more evident, interest payments are expected to return to more balanced and predictable levels. Indeed, indicators do not point to a permanent deterioration in the interest burden: The ratio of interest expenses to national income averaged 4.4 percent in the 2002-2025 period. This ratio is projected to decline to 3.5 percent in 2026 and to 3.3 percent by the end of the Medium-Term Program (MTP) period."

Noting that 10-year CPI-indexed bond issuances were gradually reduced and that the issuance of these securities was discontinued as of 2024, the statement said: "While the ratio of interest expenditures to tax revenues averaged 25.9 percent in the 2002-2025 period, it is expected to decline to 19.9 percent in 2026 and to 18.3 percent by the end of the MTP period.

The ratio of interest expenditures to total central government expenditures averaged 17.7 percent in the 2002-2025 period and is projected to decline to 14.5 percent in 2026 and to 13.9 percent by the end of the MTP period. The public debt management strategy continues to be carried out within a prudent, predictable, and sustainable framework, taking into account market conditions, the macroeconomic outlook, and risk factors. In this context, 10-year CPI-indexed bond issuances were gradually reduced during the program period, and the issuance of these securities was discontinued as of 2024."

News Source: 12punto