Turkey Economy

Turkey Economy


  • Basic data
  • Public finances and the state budget
  • Banking system
  • Tax system

Basic data

In 2021, Turkey reported the highest GDP growth within the G20 group (11%) and thus continued the year 2020, when it was, together with China, the only one of the world’s 20 largest economies with positive GDP growth. The main reasons for TR’s success are growing domestic demand and a record 32.8% increase in exports. Despite this increase, Turkey’s foreign trade deficit managed to decrease only slightly, reaching USD 4billion in 2021. Turkey is still struggling with high inflation (CPI), which, for example, reached an annual record of 69.97% in April 2022. The producer price index (PPI) was 121.82% in the same month, which suggests that price growth will continue in Turkey. The Turkish Central Bank (TCMB) expects the CPI to reach 40.47% at the end of 2022. Turkey’s big plus remains its young population, which, however, has to contend with high, more than 20% unemployment (the average is between 11-12%). The main declared objective of the Turkish government in the field of economy is economic growth and the effort to attract much-needed foreign investment.

According to cheeroutdoor.com, the most important export items of the Turkish economy in 2021 were exports of basic metals, automotive, textiles and clothing together with food products. The production of clothing and textiles accounted for 14.84% of all Turkish exports, followed by exports of basic metals (12.83%), automotive (11.89%) and food (7.69%). From the point of view of imports, Ankara closely monitors the development of the oil and natural gas market, the import of energy raw materials accounts for almost 15% of Turkish imports and is closely followed by the import of chemical products (14.44%), base metals (13.27%), engineering products (8.31%) and automotive (7.26%). The composition and share of imported energies may change significantly in the future,

Table from MOP + additionally balance of payments, indebtedness/GDP.

Pointer 2019 2020 2021 2022 2023
GDP growth (%) 0.7 0.4 11 3.3 3.5
GDP/population (USD/PPP) 30,000.00 27,081.80 30,780.00 32,930.00 34,760.0
Inflation (%) 15.2 12.3 19.6 43.7 14.1
Unemployment (%) 13.8 13.2 12 12 11.2
Export of goods (billion USD) 171.5 160.6 213.7 229.6 245.4
Import of goods (billion USD) 202.7 209.4 260.7 280.6 311.7
Trade Balance (Billion USD) -16.8 -37.9 -29.2 -31.7 -45.4
Industrial production (% change) -0.7 0.9 17.4 3.6 2
Population (millions) 83.4 84.3 85 85.6 86
Competitiveness 51/63 46/63 51/64 ON ON
OECD export risk 05.VII 05.VII 05.VII ON ON

Source: EIU, OECD, IMD

Public finance and state budget

Public finance 2021
State budget balance (% of GDP) -2.7
Public debt (% of GDP) 36.3
Current account balance (billion USD) -14.9
Taxes 2022
F.O 15% – 40%
VAT 1% – 8% – 18%

Since coming to power, the Turkish ruling party AKP has subordinated the administration of public finances to its political goals, which has become one of the fundamental pillars of its success, e.g. in the poorer, less educated and more religious strata. The deficit of the state budget relative to GDP under her government only began to grow in 2018 due to greater spending on defense, infrastructure, public administration and a number of social benefits. In 2021, however, the deficit of the state budget in relation to GDP fell to 2.7%, which was caused by the strict fiscal policy of the dismissed Minister of Finance Lutfi Elvan in December 2021. Thanks to increasing state spending in the form of a 50% increase in the minimum wage from January 2022, at least a 25% increase in wages for all state employees and the same increase in pensions with the prospect of further increases in mid-2022, at the end of this year (see Economist Intelligence Unit/EIU forecasts) the state budget deficit to GDP is expected to increase to 4.9%. With the approaching presidential elections in 2023, a fundamental reversal of this trend cannot be expected. The EIU further expects that the country’s public debt will hover around 36% of Turkey’s GDP at the same time.

The goal of the state budget for 2022 is to support the government’s efforts to establish an export-oriented economy financed mainly by domestic savings and FDI’s. Revenues in nominal terms for 2022 increased by 33.3%, while expenditures by 30.0%. The state budget deficit is planned to reach 3.5% of GDP. At the same time, the budget is planned with the assumption of economic growth of 5% of GDP for the year 2022 (the current assumptions of the EIU count on approx. 3% growth). From the point of view of the % changes in the budget for 2022 compared to 2021, it follows that the items related to climate change will see the most additions in nominal numbers (+121.9% – the share of the budget here is, however, small – 0.2% of state expenditures ), healthcare (+51.1%) and the Ministry of Finance (+40.9%) and Defense (+36%) will also improve. On the contrary, the ministries responsible for social affairs (+15.1%) and education (+28.7%) will receive the least addition.

Banking system

The financial sector falls under the competence of the Ministry of Finance (Ministry of Treasury and Finance), the implementation of banking supervision and other tasks are entrusted to the State Banking Regulatory Agency BDDK (Banking Regulation and Supervision Agency), on whose website you can find data on individual banks, statistics, relevant legislation, etc. On the website of the Banking Association of Turkey (Türkiye Bankalari Birligi/TBB) a name list of all banks and institutions with addresses, e-mails, telephone numbers and names of directors, as well as other useful information, is available.

In total, more than 50 banks operated in Turkey in 2020 according to the structure below:

A/ Central Bank of Turkey (TCMB). Its monetary committee meets every month to decide on key interest rates.

B/ Depository banks (32): 3 state depository banks: Ziraat Bankasi; Halk Bankasi; Vakıflar Bankasi; 8 private depository banks and 21 foreign depository banks (e.g. Deutsche Bank, Citibank, ING Bank, etc.) and branches of foreign banks (e.g. Societé Générale, JP Morgan Chase, etc.)

C/ Development and investment banks (16): 3 state-owned Turkish development and investment banks (which do not accept deposits): Türk Eximbank (only foreign economic and trade operations – export and guarantee bank); Iller Bankasi – Development Municipal Bank; Türkiye Kalkinma Bankasi 10 private Turkish and foreign development and investment banks

D/ Participating banks (6): There are a total of 6 banks operating on the principle of Islamic banking. At the end of 2021, their share of assets on the market amounted to 7.5%, but a further increase is generally expected.

All insurance companies are now private. According to the type of insurance operations, 6 institutes provide life insurance, 15 institutes provide pension insurance, 42 institutes provide other types of insurance, in addition, three reinsurance companies operate here. Further information is available on the website of the Association of the Insurance Companies of Turkey TSB (Association of the Insurance Companies of Turkey)

Tax system

The Turkish tax system has been dynamically changing in recent years, which also applied to corporate tax, which has stabilized at 23% for 2022. For more details in this area, we recommend regularly monitoring developments in Turkey or consulting specialized international consulting firms (e.g. Deloitte) or a specialized web portal managed by the presidential office. At the same time, attention should be drawn to the whole range of tax incentives prepared for incoming foreign investors. These differ by region (as a rule, the less developed the region, the greater the incentives) and sector (here the emphasis is on R&D). For an updated list of the most supported sectors, we recommend consulting the Ministry of Industry and Technology.

Individual income tax is based on progressive taxation with a rate from 15% to 40%. The rates applied to the annual income (in Turkish lira – TRY) are as follows:

  • up to 24,000: 15%
  • 24,001 – 53,000: 20%
  • 53,001 – 130,000/190,000: 27% (depending on whether it is employment income or non-employment income)
  • 130,001 or 190,001 to 650,000: 35%
  • Above 650,001: 40%

VAT (VAT) has three basic rates in Turkey. Goods and services (18%), basic foodstuffs, textiles (8%), agricultural products and foodstuffs (1%). It was true that the Turkish government used item transfers from one rate to another during the coronavirus pandemic as a tool to combat the crisis. In early 2022, it then decided to temporarily reclassify staple foods to the 1% rate due to rapidly rising inflation. This is a temporary measure, but the end of its validity has not been defined.

In addition to the basic interest rates, there is also a so-called special consumption tax (OTV) in Turkey, the purpose of which is to tax more goods that the government considers luxurious or that are not in accordance with the Muslim faith (alcohol, tobacco). OTV varies depending on the type of product and is added to the KDV.

Turkey Economy