The Medium-Term Program continues to sell dreams

Hayri Kozanoğlu

Yesterday, the Medium-Term Program (MTP) covering the 2026-2028 period was announced. MTPs are not policy documents that guide decision-makers in the economy and facilitate their future projections; rather, they are known as wishes that sell “rosy dreams.”

To take such a document seriously, it is expected to first take a retrospective look and explain the reasons for the failed goals. For example, last year's MTP predicted 4.0% growth for 2025 and 17.5% consumer inflation at the end of the year. Now, growth for 2025 is estimated at 3.3%, and inflation at 28.5%.

On both fronts, missing the target is not seen as a weakness. On the contrary, a success story is being written with the argument that positive growth has been achieved while inflation has fallen compared to a year ago.

Here, it is necessary to strike a delicate balance, not to be accountable to the public, but to appear appealing to the markets. This is because there is a perceived necessity to convey the impression that things are going well and the economy is running smoothly.

On the other hand, there is an awareness that painting an unnecessarily rosy picture would undermine the credibility of the Şimşek program, which still needs to attract foreign funds, commonly referred to as “hot money,” so care is needed to avoid going overboard.

The concept that Vice President Cevdet Yılmaz, who presented the program, kept repeating was total factor productivity (TFP). As is well known, TFP refers to growth beyond labor and capital inputs.

Yılmaz must be aware that the current parameters cannot deliver the promised growth, which is why he is pinning his hopes on a miracle from TFP. However, it is well known that Turkey's TFP performance is not particularly impressive.

For example, the Presidency's Strategy and Budget Office's 2024-2026 Pre-Accession Economic Reform Program stated that TFP contributed negatively to growth by 0.7%.

UNREALISTIC GOALS

We can now move on to the macro data of the 2026-2028 MTP. First, if we are to make a general assessment, it does not seem very realistic that inflation will fall sharply by 12.5 points to 16 % while achieving 3.8 % growth in 2026.

It is noteworthy that the plan relies heavily on private sector investments at a time when total consumption is slowing down with a 3.3 % increase. This suggests that the erosion of the minimum wage and labor income in general is likely to continue.

Growth: Firstly, the economy is expected to grow by 3.6% in the first half of 2025 and close the year at 3.3%, with the economy slowing down in the second half of the year.

During the years of the disinflation process, while inflation is expected to fall to 8% in 2028, it does not seem realistic that growth will gain momentum each year, closing 2026 at 3.8%, 2027 at 4.3%, and 2028 at 5%.

Unemployment: While the previous MTP projected unemployment of 9.2% in 2026 and 8.8% in 2027, these rates have been revised down to 8.4% and 8.2%.

As we will mention shortly, in a period of continued real evaluation of the Turkish lira, it is likely that the employment loss observed for some time, particularly in labor-intensive export sectors, will accelerate.

Under these conditions, it is not easy for unemployment to fall. However, we should not forget that even the unemployment rate of 7.8 % for 2028 is very high by global standards.

Exchange Rate: Looking at national income figures in TL and USD, the dollar exchange rate is projected to average 46.60 TL in 2026, 50.71 TL in 2027, and 53.76 TL in 2028.

If high interest rates are expected to continue, this creates an environment that discourages holding foreign currency and encourages hot money to invest in TL-denominated assets.

However, this trend encourages companies to borrow in foreign currency.

At a time when export revenues are growing very slowly, the net foreign exchange position of real sector companies has fallen to minus $186 billion by the end of the first half of 2025, a change of $116 billion in just 1.5 years.

This situation points to a very dangerous trend that could lead to company bankruptcies in the event of a potential foreign exchange rate jump.

Current Account Balance: First of all, it is noteworthy that export targets have been significantly lowered according to the 2024-2026 Medium-Term Program (MTP), and expectations of a narrowing trade balance have been abandoned.

A trade balance deficit of $102 billion, still above $100 billion, is expected in 2028.

Assuming average growth of 4.4% during the MTP period, and considering the slowdown in the global economy, the current account deficit cannot be reduced to an average of $20 billion.

Second, under conditions of a strong TL, exchange rates that discourage exports and encourage imports will again cause current account deficit targets to be missed.

Per Capita Income: Per capita income in dollars is expected to reach $18,621 in 2026, $19,710 in 2027, and $20,987 in 2028.

Yes, you heard it right: considering that per capita income was $10,659 in 2010, we are facing a miracle of sorts, with income doubling in dollar terms per year.

However, it seems very difficult to achieve this target. Yes, it is true that there has been an increase on paper.

However, this is not a leap in prosperity, but rather a strange result of the Şimşek program, which keeps the Turkish lira artificially valuable.

Naturally, this provides the AKP government with an opportunity for propaganda. It also offers vacation opportunities in the Greek Islands, London, and Miami to those who have the money.

Note: This article is translated from the original article titled Orta Vadeli Program hayal tacirliğine devam ediyor, published in BirGün newspaper on September 9, 2025.