Fitch Report: Turkey's Strong Sukuk Position Amid Strategic Funding Needs and Geopolitical Risks

Fitch Ratings confirms that Turkey will maintain its leading position in the global sukuk market and remain a top issuer in emerging markets (EM) throughout 2024.

Strategic Funding Drivers and Financing Gaps

Turkey's high external financing requirement, upcoming debt maturities, and widening fiscal deficits are key catalysts for continued sukuk issuance.

■$516 billion total debt stock hit a record with a 9% YoY increase in the first half of 2026.

■33% of the debt stock is denominated in U.S. dollars.

■Sukuk issuances now represent 14% of DCM issuances, up from 8% a year earlier.

Geopolitical Tensions and Market Impact

Fitch warns that the Iran conflict and broader regional tensions could pressure investor sentiment, yields, and liquidity.

■Pre‑war U.S. Treasury spread widened post‑conflict but narrowed back to pre‑conflict levels in June‑July.

■U.S.‑denominated Turkish sukuk carry a BB‑ rating with no default record.

■Foreign participation in the domestic currency market is declining, while demand for foreign‑investor‑backed sukuk remains robust.

ESG and Green Finance Momentum

Hosting COP31 and unveiling the National Green Finance Strategy are expected to boost ESG‑linked debt instruments.

■Anticipated surge in green sukuk issuance.

■ESG‑compliant issuances can enhance liquidity and investor diversification.

Debt Stock, Liquidity, and Market Outlook

Fitch notes that Turkey’s debt capital market (DCM) has continued to expand despite geopolitical uncertainty, ranking as the fifth‑largest global sukuk market in the first half of 2026.

■U.S.‑denominated sukuk exhibit higher liquidity than comparable U.S. Treasury bonds.

■Both asset classes saw liquidity erosion after the conflict, yet recovery signals are present.

Turkey’s sustainable sukuk growth rests on solid external financing access and the uplift from ESG‑focused strategies. While regional geopolitical risks may generate short‑term volatility, long‑term liquidity and diversification opportunities will be pivotal in keeping borrowing costs stable for SMEs and large corporates. Careful calibration of monetary policy and macro‑prudential safeguards by the Central Bank is essential to preserve market liquidity.