Mehmet Şimşek's Treasury Tenure: Turkey's Economic Turning Point Amid Earthquake, EYT, and Inflation Storm

Mehmet Şimşek's return to the Treasury and Finance Ministry forced Turkey to reshape its fragile macro‑economic balance.

Fiscal Fallout from the Earthquake Shock

The February 6 2023 earthquakes set in motion a reconstruction effort affecting 14 million citizens. 680,000 homes and businesses require rebuilding, imposing a 10% fiscal burden on public finances.

■World Bank's initial damage estimate: $34 billion

■UN‑Turkey joint assessment: over $100 billion

■Equivalent to ~10% of Turkey's GDP

EYT's Additional Strain on Public Finances

The Emeklilikte Yaşa Takılanlar (EYT) reform is projected to cost up to $2 trillion by 2026. Initially, 2 million retirees were added, quickly swelling beyond 3 million.

■Total projected cost by 2026: $2 trillion

■Increase in retirees: +1 million individuals

Reserve Collapse and External Financing Risk

When Şimşek took office, the Central Bank’s net reserves had fallen to ‑$60 billion. While gross reserves appear larger, most of the amount is tied up in swap arrangements.

■Net reserve decline: ‑$60 billion

■CDS spread: over 700 bps

■External financing cost increase: 30‑40%

Inflation Surge and Monetary Policy Shift

Annual inflation rose from %64.8 in June 2023 to over %75 in 2024. The central bank’s policy rate stood at %8.5, while market rates were considerably higher.

■2023 inflation: %64.8

■2024 inflation: %75+

■Policy rate: %8.5

Strategic Core of the Şimşek Programme

The programme aligns monetary, fiscal, and income policies around three pillars:

■Gradual disinflation

■Reserve rebuilding

■Balancing fiscal shocks

Accordingly, minimum wages, civil servant salaries, and energy prices were calibrated to inflation targets, while efforts to lower CDS spreads and strengthen reserves aimed to improve external borrowing conditions.

Analyst Note (Savaş Yıldırım): Şimşek’s agenda seeks to juggle high inflation and external financing fragility while embedding the costly post‑earthquake reconstruction into a sustainable fiscal framework. The hike in policy rates and the swap‑laden reserve composition may pressure investor confidence in the short run; long‑term success hinges on structural reforms and transparent fiscal management.