Welcome back! We’ve been on holiday the last two weeks, perhaps gallivanting through Turkish provinces, investigating if these figurines can hold a flame to the real McKöy. Or maybe we were gorging on all-you-can-eat hotel buffets before they disappear.
As compensation for our absence, we have removed the paywalls for this week’s recaps and are offering a back-to-work subscription discount! Hey, we know every kuruş counts and we thank you for your stalwart support! Now, we have a ton to cover - let’s get into it!
In this week’s edition:
Government ends lira deposit scheme
Summer inflation highs and lows
‘Deal’ reached on civil servant, retiree salaries
Cruel summer speed round
FDI: Cash flow monitor
This week’s stat round-up
FX-protect ya wreck: Government ends lira deposit scheme
Just as August bids us adieu, so does the FX-protected deposit scheme – closing the book on this controversial crisis-era policy that left the country feeling more currency-sick than protected.
The scheme got the final boot on Aug. 23, with the Central Bank stating no new FX-protected lira deposit accounts would be opened and those in existence would not be renewed.
Known as KKM (Kur Korumalı Mevduat), the scheme was launched in 2021 to combat the dollarization of the Turkish economy. At the time, the CB had started cutting interest rates while inflation was rising, causing a sharp decline in the TL’s value. The KKM was an attempt to encourage people to keep their savings in TL by removing the exchange rate risk, thus stabilizing the currency.
So, all you had to do was deposit money in TL for some time and at the end of the maturity period, you were guaranteed the higher of two amounts: the interest earned on the TL deposit OR the difference in value between the TL and foreign currency that had accumulated over the specific period … sounded like a sultry deal …
So, why is it over now? Well, as the lira continued its deep dive into depreciation, it ended up costing the state and CB billions of dollars trying to cover the exchange rate difference!
How much, you ask? The sticker shock has been officially estimated at $60B, while others, like Fatih Altaylı, place the damage of the scheme and the subsequent interest rate hikes to save the economy at around $300B.
Mahfi Eğilmez, in a recommended piece on the matter, stated “as of August, there is still 10.9 billion dollars in KKM accounts” – agreeing the $60B price tag will inevitably rise.
Finance Min. Mehmet Şimşek referred to the KKM scheme as “a significant contingent liability”, stating with its removal, “financial stability will be further strengthened”.
Sound like closure? We shall see. For more insight into the axing of the scheme and its repercussions, see this week’s Fortune TLer.
August’s inflationary rundown: Summer inflation highs and lows
And just like that, we’ve arrived at inflation. For those a bit rusty or new to Turkey’s economy, here’s a quick insta-lisious explainer on how we got here.
Mid-August saw the Central Bank’s 3rd inflation report, with CB Gov. Fatih Karahan describing our current phase (next 12-24 months) as the “control horizon” – when the impact of the monetary policy will be most strongly felt. We’re not nervous, are you?
The bank maintained its year-end interim target at 24 percent, placed its year-end forecast range at 25–29 percent and 2026’s range at 13–19 percent.
As the CB is always busy, even in August, it also released Sectoral Inflation Expectations, announcing 12-month annual inflation expectations as 22.8 percent (0.6 point decrease) for market participants, 37.7 percent (1.3 point decrease) for the real sector, and 54.1 percent (0.4 point decrease) for households. The report signals a more positive outlook and had Min. Şimşek gleefully chiming in on X – “The improving trend in expectations is supporting disinflation.”
The Turkish Statistical Institute (TÜIK) also decided to turn up in August, releasing their Economic Confidence Index on Thursday, with a 1.7 percent increase, resting confidence at 97.9 percent.
Earlier, they announced their Consumer Confidence Index, which showed a rise in confidence from 83.5 to 84.3. Anything below 100 signifies a pessimistic outlook but compared to August 2023’s 68, optimism appears on the horizon.
Then, TEPAV Retail Confidence Index (TEPE) bejeweled us with a 4.5 point increase and strengthened sales expectations for the next three months at 5.4 points in July – an 11.8-point increase MoM and a 7.2-point increase YoY.
Perhaps in a bazaar PR move to push that index higher, US Ambassador to Turkey, Thomas Barrack, marked his 100th day in office by posting this heartfelt video strolling through Kapalı Çarşı. We’re convinced he genuinely likes it here.
Ok, and that ends our enchanted segment, returning now to more delicate ground.
Despite positive trends in confidence, food inflation remains difficult to digest. The United Public-Business Confederation (KPU) reported food prices rose by 54.5 percent in the last year and 3.2 percent in August. In June, the OECD released a report, in which Turkey dominated the food inflation rankings at a whopping 40.6 percent – leaving every other OECD country in the dust, with none even exceeding 5 percent.
According to a report by Nefes, a 16-basic-item purchase at the grocery store has increased 171 percent in three years. And the Agricultural Credit Market, reporting price increases on the shelves, showed corn increasing 500 percent since 2022 – going from 6.45 TL a kilo to 38.90 TL today.
If that wasn’t enough to create market pessimism, people are furious about food waste – filming market workers throwing away crates of tomatoes and residents in Rize questioning why a truckload of bread is being dumped into the sea every month.
And grape producers in Manisa are struggling with the low yield due to April’s frost and high costs, stating they “can’t keep up with this inflation” and don’t feel supported by the state. Definitely no bad blood there…
Civil distress: ‘Deal’ reached on civil servant, retiree salaries
The 8th Term Collective Bargaining negotiations, concerning approximately 6.5 million civil servants and retirees for 2026 and 2027, concluded this week with a binding decision from the Public Servants Arbitration Board. However, there was mass outcry and rejection from the unions.
The second raise proposal, announced Aug. 15, was met with calls of “non-negotiable” from Memur-Sen President Ali Yalçın, and in rebuff to the offers across the board, unions affiliated with TÜRK-İŞ, Kamu-Sen and KESK staged a nationwide one-day work stoppage, halting work across 81 provinces.
Union representatives marched on the Ministry of Finance in protest, while members of the Birleşik Kamu-İş Konfederasyonu attempted to march on the Presidential Palace after their request to meet with Pres. Erdoğan fell on deaf ears. However, wise to the plan, police placed the union under a blockade, preventing the march.
What were the union demands?
The leading union, Memur-Sen, demanded 88 percent raises for 2026 and 47 percent for 2027, along with a 10,000 TL increase to the base salary and other benefits like rent and holiday bonuses. They argued existing salary levels (50,503 TL minimum for civil servants, 22,671 TL minimum for pensioners, as reported by AA) cannot keep up with basic living expenses in such a high inflationary environment.
What did the government offer?
Government offers started with a 10 percent and 6 percent raise for 2026, and 4 percent for each half of 2027. The final Aug. 18 offer approved by the board raised civil servants' and civil servant retirees' salaries by 11 percent in the first half of 2026 and 7 percent in the second half, followed by 5 percent in the first half of 2027 and 4 percent in the second half, and included a 1,000 TL increase to the base salary.
In the end, union leaders walked out of the Arbitration Board Aug. 26, condemning the process and rejecting the proposals – viewed as insufficient in addressing harsh economic realities.
Referring to the Board’s proposals, pres. of Kamu-Sen, Önder Kahveci, stated on X they “were insufficient to resolve the problems of public servants and meet their expectations.” Regardless, the final decision was published Aug. 27 in Turkey’s Official Gazette.
Cruel summer speed round
Lawyer Mehmet Yıldırım was detained on charges of “influence peddling” after CHP head Özgür Özel publicly alleged the existence of an "Istanbul Metropolitan Municipality (IMM) Stock Exchange."
Former Machinery and Chemical Industry President İsmet Sayhan was detained on Aug. 24 for espionage and arrested Aug. 27 as part of an ongoing investigation into a criminal organization allegedly led by Selahattin Yılmaz.
SEB Research predicted the TL will reach 50 to the dollar by June 2026. (It snuck past 41 over the break)
As the production of coins is exceeding their worth (1 TL costs 4.3TL), they are set to be phased out but the timing remains unclear.
And in EVer popular news, Turkey is ranked 4th in electric car sales across Europe – seeing sales rise 27 percent from January to July. For more on Turkey’s changing automotive sector, see these reports by OSW and EDAM.
💸 FDI: Cash flow monitor
Outbound FDI:
Turkish Airlines is set to acquire a minority stake in Spain’s Air Europa. The €300 million investment will be mostly in capital increase form, and the process aims for competition in 6-12 months.
Potential outbound FDI:
Earlier this month, Energy and Natural Resources Minister Alparslan Bayraktar stated agreements would soon be made for gas and oil exploration in Pakistan - however, no news has emerged since.
Libya is also keen to let Turkey explore for oil and gas. Benghazi is expected to vote on the matter in the coming weeks and, if approved, it could potentially pave the way for another Turkey-Greece territorial spat.
Defense export contract:
Arms manufacturer ASELSAN signed an export contract of $54 million with an undisclosed party in the Middle East and Africa region for the sale of radar and command control systems.
Potential export contract:
Defense industry cooperation was on the agenda during the Japanese defense minister’s trip to Ankara, with the possible purchase of Turkish-made drones.
Returning to oil, Ankara and Iraq are negotiating a new oil export agreement through the Turkish port of Ceyhan and a new deal will reportedly be reached before the previous deal expires in 2026.
🧮 Buy numbers: This week’s stat round-up
1T TL: Amount budget deficit exceeded in 2025’s first seven months.
$174.4M: Gross reserves reached an all-time high the week of Aug. 8.
19,381: Ships passed through the Bosphorus Strait in 2025’s first six months.
8th: Turkey’s rank amongst NATO countries in defense spending - $23B - 2.09 percent GDP.
$294B: CB’s gross debt stock at July’s end. Treasury bills accounted for 74B TL, government bonds totaled 6.8T TL and international bonds were 3.9T TL.
829 pct: Egg price increase over last five years.
$1.5B: ASELSAN investment in new technology base – more than doubling production capacity.
82M TL: Savings achieved with Türksat's Solar Energy Power Plant (SPP), preventing 8,400 tons of carbon emissions in one year.
54.7 pct: Enterprises in the manufacturing industry involved in low-tech.
1M: Users of Next Social, a social media platform launched by Selçuk Bayraktar’s T3 Foundation.
326,450: Cruise ship passengers visiting Turkey last month – marking highest July passenger number in over a decade.
5 pct: Drop in foreign visitor arrivals in July.
🔮 Fortune TLer
“The move was widely anticipated, but its timing shows Ankara’s confidence that macro conditions are strong enough to stand without extraordinary support. It is perhaps the clearest success of Şimşek’s stabilization program -- if not the only one -- and marks a necessary, though still incomplete, step toward true economic normalization.”
“Short-term risks stem from maturities clustered in the autumn, which could trigger bouts of FX demand. The real test will be whether the government sticks with tight policy and transparent tools in the face of such volatility -- especially after a costly scheme that left the state more than $60 billion poorer without accountability. Success now depends on consistency and discipline.”
– Wolf Piccoli, senior managing director & co-president, geopolitical risk advisory at Teneo, on 1) the termination of the FX-protected deposit scheme and 2) short-term risks foreseen for the Turkish Lira
⚡Speed reads
In Adıyaman-Gölbaşı, the title deeds of 1,359 people were erased overnight. (Medyascope)
Turkey investigates 66 power firms over failure to follow grid orders (Bloomberg)
Turkey aims to hold 5G frequency tender in October, minister says (Reuters)
New Black Sea gas platform to begin operations mid‑2028: Minister (HDN)
Zim confirms Turkey’s immediate ban on shipping associated with Israel (Maritime)
Foot-and-mouth outbreak forces market closures, leaves livestock producers struggling (Bianet)
Turkey set to end ban on investors short-selling stocks (Bloomberg)
Spotify will open an office in Turkey in 2026 (Medyascope)
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