Fitch Ratings announced an upgrade of Turkey’s economic outlook to positive from stable as of Friday, while upholding the country’s long-term foreign-currency issuer default rating at BB-. This positive reassessment is primarily due to a marked decrease in external financial vulnerabilities driven by a more rapid than anticipated growth in Turkey’s foreign exchange reserves since the last rating revision in September 2024.
Turkey’s gross foreign exchange reserves increased substantially, reaching approximately $205 billion by mid-January, up from $155 billion at the conclusion of 2024. In addition, net reserves excluding swap arrangements improved sharply, climbing to $78 billion from a deficit of $66 billion recorded in March 2024. This turnaround was initially supported by reductions in dollarization and capital inflows, accompanied in 2025 by gains in gold prices.
Despite these improvements, Fitch forecasts that Turkey’s gross reserves will represent 4.4 months of current external payment obligations by the end of 2027, a slight decline from 4.6 months at the close of 2024, and still below the BB median level of 5.1 months.
Another indicator of reduced external vulnerability is the decline in foreign currency and FX-protected deposits, which fell modestly to 39% of total deposits in 2025, following a significant drop from 73% in mid-2023. Notably, the FX-protected deposit scheme has been successfully phased out.
Turkey’s external debt coming due within the next 12 months remains high at $224 billion relative to foreign exchange reserves. Nonetheless, Fitch projects that external liquidity will strengthen to nearly 100% by 2027 from 80% at the end of 2024. This level, while an improvement, still remains below the BB median external liquidity ratio of 136%.
Fiscal policy shows signs of improvement with the general government deficit narrowing by almost two percentage points to an estimated 2.9% of GDP in 2025. Fitch anticipates the deficit will rise to around 4% of GDP by 2027, but overall government debt is expected to remain stable at roughly 25% of GDP, which is approximately half the median for BB-rated peers.
Inflation, a critical economic challenge for Turkey, has decreased from 75% in May 2024 to 31%. Projected inflation is forecast to remain high at 19.5% by the end of 2027, making it the highest among Fitch-rated sovereigns and well above Turkey’s inflation target.
Economic growth is expected to decelerate by 0.3 percentage points to 3.5% in 2026 before accelerating to 4.2% in 2027, slightly exceeding Fitch’s estimate of Turkey's potential growth rate.
Fitch also highlighted that despite recent setbacks, ongoing efforts toward Kurdish reconciliation are anticipated to reduce domestic security risks and may contribute to improved relations with the United States.