Posts in category: Commentaries

Professor Ibrahim Ozturk argues that Turkey’s 2027–2029 Medium-Term Program is less a credible development strategy than a politically sequenced exercise in economic populism. While promising lower inflation, faster growth, and technological upgrading, the program simultaneously expands current transfers, procurement, interest payments, and fiscal deficits while squeezing productive capital expenditure. Professor Ozturk contends that this structure reproduces a familiar electoral cycle: benefits are front-loaded, while the costs are deferred through inflation, taxation, debt, currency depreciation, and declining real wages. He further warns that Turkey is shifting from a developmental state toward a transfer state in which politically protected rents crowd out productivity-enhancing investment. The ultimate cost, he argues, is not merely fiscal instability but the erosion of Turkey’s long-term productive capacity and competitive advantage.

By Ibrahim Ozturk

Economic Populism: A Brief Conceptual Background

The classical paradigm of macroeconomic populism, articulated by Rüdiger Dornbusch and Sebastian Edwards in The Macroeconomics of Populism in Latin America, describes a self-defeating political-economic cycle in which governments prioritize short-term growth and redistribution while discounting inflation, fiscal sustainability, productive capacity, and external constraints. These programs generally emerge in societies marked by deep socioeconomic inequality, declining trust in established institutions, and accumulated demands for redistribution. Governments respond by combining expansionary fiscal policies, rapid credit growth, substantial nominal wage increases, administered prices, subsidies, and attempts to suppress exchange-rate volatility. During the initial phase, the resulting demand shock can generate a temporary boom: capacity utilization rises, employment expands, real wages may initially improve, and politically visible consumption increases.

The apparent success of this first phase reinforces the government’s claim that conventional fiscal and monetary constraints can safely be disregarded. Yet the expansion does not necessarily increase productive capacity. When aggregate demand exceeds domestic supply, production bottlenecks intensify, imports rise, foreign-exchange requirements increase, and inflationary pressures accumulate. Attempts to suppress inflation through price controls, subsidized credit, fiscal transfers, or an overvalued exchange rate merely postpone—and often magnify—the eventual adjustment.

As foreign-exchange reserves decline and fiscal and external imbalances become increasingly difficult to finance, inflation accelerates, confidence deteriorates, capital moves abroad or into foreign currency, and the domestic currency depreciates. The government is ultimately forced to adopt stabilization measures involving tighter credit, higher interest rates, fiscal retrenchment, tax increases, and real-wage compression. The central paradox identified by Dornbusch and Edwards is therefore distributive: the social groups whom populist policies initially promise to protect frequently bear the heaviest burden of the subsequent crisis and adjustment.

A second strand of the literature explains why such policies remain politically attractive despite their recurrent economic costs. Acemoglu, Egorov, and Sonin argue that politicians may strategically adopt radical or economically costly positions to signal that they are not controlled by established elites. This signaling mechanism can make policy extremism electorally advantageous even when its longer-term economic consequences are damaging.

Dani Rodrik, in turn, emphasizes that globalization, technological disruption, regional inequalities, and distributional shocks generate genuine grievances that populist actors can mobilize. Populism therefore cannot be understood solely as manipulation from above. It also draws strength from real failures of representation, social protection, and economic inclusion. Once political leaders weaken institutional constraints and subordinate economic policy to electoral survival, however, legitimate grievances can become a mechanism for sustaining increasingly discretionary and unsustainable policies.

The conceptual distinction is crucial. Redistribution is not inherently populist, nor is every expansionary fiscal policy economically irresponsible. Redistribution becomes part of populist macroeconomic management when politically visible benefits are concentrated before an electoral deadline, their financing is concealed or deferred, productive and institutional constraints are disregarded, and the eventual adjustment is transferred to society through inflation, taxation, currency depreciation, public debt, unemployment, and declining real wages.

From the Classical Populist Cycle to Turkey’s Growth-Inflation Trap

Turkey’s recent experience does not reproduce every element of the classical Latin American model mechanically. It nevertheless displays several of its central political-economic mechanisms: the subordination of monetary policy to political objectives, credit-led demand expansion, the erosion of central bank credibility, extensive reliance on administrative interventions, the depletion of foreign-exchange buffers, and the postponement of adjustment until after politically critical moments.

Figure 1 places Turkey’s real GDP growth and officially reported year-end consumer-price inflation side by side. Between 2018 and 2025, inflation rose dramatically without a corresponding durable acceleration in real economic growth. The exceptional growth recorded in 2021 largely reflected the post-pandemic recovery, strong credit expansion via artificially subsidized negative real interest rates, and favorable base effects; it should not be interpreted as evidence that higher inflation generated structurally stronger growth.

The simple contemporaneous correlation between the two variables is positive but only moderate—approximately 0.44—and does not establish causality. More importantly, the temporal pattern reveals a widening divergence between nominal instability and real economic performance. Inflation exceeded 64 percent in 2022 and 2023, while real GDP growth remained close to 5 percent. As officially reported inflation subsequently declined, growth also weakened, reaching 2.3 percent year on year in the second quarter of 2026.

The central issue is therefore not whether inflation and growth occasionally move in the same direction, but whether inflationary expansion produces sustainable improvements in productivity, investment quality, technological capacity, employment, and household welfare. Turkey’s experience provides little evidence that it does. An inflationary growth strategy can temporarily support consumption, construction, government-directed investment, and politically connected sectors without generating comparable improvements in total factor productivity or long-term supply capacity. Measured GDP growth may consequently coexist with deteriorating income distribution, declining purchasing power, inefficient capital allocation, and eroding institutional credibility.

Turkey’s 2027–2029 Medium-Term Program (MTP) should be read through this conceptual and empirical lens. Although presented as a medium-term framework, its macroeconomic targets, expenditure composition, revenue assumptions, and sequencing of policy measures reveal a considerably shorter political horizon. The central question is whether the program constitutes a credible transition towards price stability, productive investment, institutional normalization, and distributive justice—or another attempt to defer structural adjustment while protecting Erdogan’s immediate political survival.

The Three Tests of an Economic Program

Every serious economic program must answer three elementary questions. First, how will the economy produce more and better goods and services? Second, how will scarce capital, labor, public revenue and foreign exchange be allocated to their most productive uses? Third, how will the resulting national income be distributed across households, firms, regions and generations? Growth, allocation and distribution are not separate chapters. They are a single system.

Analytical Frame: What the MTP Must Demonstrate

Judged by this triad, the MTP fails at a deeper level than forecast inconsistency. It subordinates production to demand management, efficiency to politically protected transfers, and distributional justice to a sequence in which organized beneficiaries receive secure returns while the wider public absorbs inflation, taxation and deteriorating public services.

A Program Without an Institutional Kitchen

The MTP reads less like the output of an autonomous professional planning process than a document assembled backward from a political requirement. The targets appear first; the behavioral mechanisms, policy instruments, implementation responsibilities, risk scenarios and trade-offs needed to make them mutually consistent are either missing or underdeveloped. This is what a program produced under political pressure looks like: arithmetic without architecture.

That weakness is inseparable from institutional history. The State Planning Organization (SPO), which accumulated specialized staff, sectoral memory and a culture of medium-term coordination, was abolished as a distinct organization in 2011 and transferred into the Ministry of Development. In 2018, the Presidency reorganized planning and budgeting functions under the Strategy and Budget Presidency. Formal responsibilities remained, but the center of gravity shifted from relatively autonomous technocratic coordination to a vertically controlled executive structure. The 2018 Presidential Decree establishing the Strategy and Budget Presidency documents these institutional changes. The analytical conclusion follows from the MTP itself: when autonomy, professional challenge, and collective deliberation are weakened, implausible assumptions are less likely to be questioned before publication. The issue is not the personal competence of every civil servant involved. It is the institutional environment in which competence can no longer constrain politics. Merit, teamwork and professional dissent cannot correct a program when the desired electoral conclusion is fixed in advance.

A Medium-term Program with a Short-term Political Horizon

The MTP projects faster growth, lower inflation, falling unemployment, a smaller current-account deficit and—after a temporary 2027 deterioration—a lower budget deficit. None of these outcomes is impossible in isolation. Their simultaneous delivery, however, requires a major productivity shock, stronger expectations, sustained capital inflows and unusually high policy credibility. The MTP states the destination more clearly than the transmission mechanism.

The Fiscal Fingerprint of an Early Election

The program’s political character is clearest in the 2027 budget. Expenditure rises faster than revenue; the budget deficit increases by almost 47 percent; and the already modest primary surplus is nearly halved. The MTP therefore does not begin its disinflation story with fiscal restraint. It begins with fiscal expansion.

The deficit-to-GDP ratio rises from 3.1 percent in 2026 to 3.5 percent in 2027, while the primary surplus almost disappears. In other words, the fiscal stance loosens just as the MTP claims inflation expectations will be decisively anchored.

Against the MTP’s roughly 25 percent 2027 deflator, current transfers rise by about 16 percent in real terms and purchases of goods and services by roughly 15.5 percent, while capital spending falls by about 17 percent in real terms. The contradiction is not rhetorical; it is embedded in the allocation. The MTP’s narrative promises technological upgrading; its budget finances current transfers, procurement and interest.

The 2023 Cycle Is Being Reconstructed

Turkey’s 2023 election cycle combined subsidized credit, public wage and pension increases, retirement arrangements, tax restructuring, energy support and extensive foreign-exchange and credit interventions. After the election came sharp depreciation, higher indirect taxes, tighter monetary policy and declining real purchasing power. The sequencing mattered: the benefit was immediate and politically visible; the correction was delayed and socially dispersed.

The MTP’s 2027–2029 path risks reconstructing the same political technology. The 2027 expansion supplies the distributive moment; the lower deficits and inflation promised for 2028–2029 imply the later correction. This is the classic time structure described by the economic-populism literature.

Distribution: Poverty Is Not a Footnote

The MTP discusses per-capita income and social policy, but aggregate averages conceal the depth of the subsistence crisis. Labor union TURK-IS calculated the August 2026 monthly food-only hunger threshold for a four-person household at TRY 37,388 and the broader poverty threshold at TRY 121,786; the estimated living cost of a single employee was TRY 48,305. These benchmarks show how far ordinary labor income has fallen behind the cost of basic reproduction.

The comparison permits a forceful but precise conclusion: the average household income of the poorest 40 percent is below the TURK-IS hunger threshold, while the average income of the bottom 80 percent is below its poverty threshold. This does not mean every household in those quintiles falls below the relevant line; the figures are quintile averages, and the TURK-IS thresholds refer to a four-person household. (See TURK-IS, August 2026 Hunger and Poverty Threshold. TUIK’s official relative-poverty rate—13.0 percent in 2025—uses an equivalized median-income methodology and therefore answers a different question. The two measures should not be conflated).

The methodological caution does not weaken the substantive conclusion. When the minimum wage is below a food-only threshold for a representative family, and the broader basic-needs budget is multiples of ordinary earnings, distributional stress is systemic. The MTP’s reliance on indirect taxation, inflationary erosion, and delayed adjustment means that lower- and middle-income households finance a disproportionate share of the program.

Economic populism does not correct this injustice. It temporarily compensates selected groups, then recreates poverty through inflation, currency depreciation, taxation, and compressed real wages. It distributes relief politically and distributes the bill socially.

Tax More, Privatize More, Borrow More

The revenue side does not solve the contradiction; it exposes it. In 2027, tax revenue is programmed to grow by 36.5 percent, faster than nominal GDP growth of about 30.3 percent. Tax revenue rises from 17.1 to 17.9 percent of GDP, while the total tax burden, including social-security contributions, moves from 24.3 percent in 2026 to 24.8 percent in 2027 and 25.1 percent by 2029. The MTP therefore couples visible expenditure with a rising social tax burden.

Privatization revenue jumps by roughly 70 percent in 2027, yet the MTP does not identify the assets, valuation logic or economic rationale behind that acceleration. Even if fully realized, the proceeds would finance less than 5 percent of the projected budget deficit. This is not a structural revenue strategy; it is a temporary financing device. Tax more, sell more and borrow more—then channel the proceeds into current expenditure, interest and guaranteed returns.

From a Developmental State to a Transfer State: Interest as Upward Redistribution

The MTP projects approximately TRY 13.9 trillion in cumulative interest payments during 2027–2029, against only about TRY 7.1 trillion in capital expenditure. In 2027 alone, interest is 2.15 times capital spending and close to 20 percent of tax revenue. At TRY 3.98 trillion, interest expenditure even exceeds the projected TRY 3.87 trillion budget deficit.

Interest is not merely a technical cost of debt. Under these conditions, it becomes a distributional mechanism: broad-based taxation and inflation-generated fiscal revenue are transformed into secured financial returns. Resources that could support education, research, technological upgrading, industrial capability and social resilience are transferred to holders of public debt.

Guaranteed Rent Capitalism

A second transfer channel lies outside the interest line: public–private partnership guarantees. For 2026, approximately TRY 136.1 billion was discussed for rent and service payments to 18 city hospitals, while about TRY 101.3 billion was allocated for bridge, motorway and tunnel guarantees. Together, these visible channels approach TRY 237.5 billion. Parliamentary budget proceedings on city hospitals and reporting on transport guarantees illustrate how these obligations are dispersed across rents, availability payments, services, traffic or revenue guarantees and exchange-rate adjustments. The problem is not the Public–Private Partnership (PPP) instrument in principle. It is the allocation of demand and currency risk to the state, the protection of corporate revenue over long horizons, and the limited transparency of effective returns and renegotiation terms. Profit is privatized while risk is socialized.

The MTP repeatedly invokes artificial intelligence, semiconductors, digitalization, green transformation and high-value-added exports. Yet its budget composition crowds out the very capital formation needed to make those ambitions credible. The state’s function shifts: its developmental and social capacities weaken, while its tax-collecting, interest-paying and guarantee-providing roles expand.

This changes incentives throughout the economy. Firms gain more by securing public contracts, guarantees and regulatory privilege than by building capabilities, raising productivity or competing internationally. Connections and rents displace innovation and competitive advantage.

Production: Growth Without Upgrading

The MTP treats a rising GDP growth path as evidence of development. But growth generated by public consumption, protected construction, credit expansion and imported inputs is not equivalent to a durable increase in productive capacity. The relevant question is not only how fast output grows, but what is produced, with which technology, at what import content, and with what learning effect.

The OECD Economic Survey of Türkiye 2025 concludes that future convergence must increasingly come from productivity because the demographic dividend is fading and investment is already high. Yet productivity has slowed, investment has flowed disproportionately into lower-productivity areas such as housing, and intellectual-property investment has been roughly half the European share. High-technology exports have remained around 3.5 percent of manufactured exports, far below comparable upper-middle-income economies.

This is precisely why the MTP’s expenditure composition is so damaging. A country that needs skills, research, digital diffusion and export sophistication cannot treat capital spending as the residual item after interest, transfers and procurement. The program may raise measured demand in 2027 while lowering the economy’s ability to generate non-inflationary supply thereafter.

Allocation: The Destruction of Efficiency

Resource allocation is the bridge between today’s spending and tomorrow’s productive frontier. An efficient system directs finance, land, public procurement, skills and foreign exchange toward firms and sectors capable of learning, innovating and competing. A rent-based system directs them toward political access, guarantees, sheltered markets and balance-sheet protection.

The MTP deepens the second pattern. Interest payments reward the holders of financial claims; public–private partnership guarantees protect selected corporate cash flows; current transfers and procurement grow rapidly; and capital expenditure is squeezed in real terms. The result is not merely waste in a static accounting sense. It is dynamic misallocation: productive firms face high financing costs and uncertainty while politically connected activities enjoy protected returns.

The OECD’s assessment reinforces this diagnosis: productivity is impaired by skill mismatch, barriers to business dynamism, state intervention and weak competition in network sectors. It estimates that pro-competition reforms in infrastructure-dependent sectors could materially raise firm-level productivity (See the OECD’s competitiveness and innovation chapter.) The deepest cost is not this year’s deficit. It is the competitive capability that Turkey fails to build.

Economic Populism as a Strategy of Regime Reproduction

The political logic extends beyond ordinary electoral opportunism. Erdogan needs a renewed coalition, a favorable parliamentary balance and a constitutional or electoral route to reproduce the regime. Article 116 of the Constitution provides that if parliament renews elections during the president’s second term, the incumbent may stand once more. This provision does not prove a 2027 election, but it makes the concentration of fiscal expansion in 2027 politically significant. See the official English text of the Constitution of the Republic of Turkey. The MTP’s timing fits a strategy in which benefits are immediate and attributable, while costs are postponed, fragmented, and depoliticized.

Gambling with Turkey’s Future

The central problem is not that Turkey lacks resources. The program simultaneously damages all three foundations of the economy. It produces growth without sufficient productive upgrading; it allocates capital away from its highest social return; and it distributes income and adjustment costs in favor of organized financial and politically protected interests.

The immediate casualty is distributive justice. The medium-term casualty is fiscal and macroeconomic sustainability. The longest-lasting casualty, however, is competitive advantage. Inflation can eventually be reduced, and a budget can eventually be tightened. Capabilities not built, skilled people lost, firms excluded from finance, technologies not absorbed and export markets surrendered are far harder to recover.

In that sense, the MTP is less a medium-term development program than an intertemporal political bargain drafted inside a weakened institutional order. The Erdogan regime borrows from Turkey’s future to purchase support in its present. It sacrifices not only fairness in distribution, but efficiency in resource allocation and sustainability in production. The recovery can be staged; the underlying model cannot be sustained. The election comes in 2027. The taxes, inflation, debt and lost development arrive in 2028.