Low Debt, Big Questions: Turkey’s Fiscal Strength in a High-Debt World
- The Istanbul Chronicle Team
- Sep 21
- 6 min read
Introduction
As of the end of 2024, Turkey’s debt-to-GDP ratio stood at 24.7%, well below many advanced economies. The debt-to-GDP ratio, essentially public debt as a share of total output, is a widely used measure of fiscal health, and international comparisons show striking differences. For example, this ratio is 237% in Japan, 124% in the US, 95.9% in the UK, 88.3% in China, 154% in Greece, and 62.5% in Germany. Among developing countries, Brazil (76.5%), South Africa (76.9%), and India (81.6%) show higher ratios, highlighting Turkey’s position. (Trading Economics)
This article examines why Turkey’s debt ratio is low, its implications for the economy, and the lessons that can be drawn from countries that remain stable even with high debt. This comprehensive analysis aims to provide readers with a deep understanding of the importance of the debt-to-GDP ratio.
Theoretical Framework and Calculation of Debt-to-GDP Ratio
The debt-to-GDP ratio is a key indicator used in macroeconomic analysis to measure the sustainability of a country's debt. The ratio corresponds to the public debt divided by GDP, expressed as a percentage. For example, assuming that Turkey's public debt is 11.4 trillion TL and its GDP is 46.1 trillion TL as of 2025, the debt-to-GDP ratio stands at 24.7%.
International organizations and economists use certain threshold values in interpreting this ratio. General acceptance: 30–60% is considered low risk; 60–90% is considered medium risk; over 90% is considered high risk. However, the structure of the country and the cost of debt affect these limits.
Over time, increases warn of risk, while declines bring relief. A steady rise signals worsening debt, while a fall shows easing pressures. In addition, the rate of change in the ratio, rather than its level, can also serve as an important early warning indicator for policymakers.
Structural Reasons for Turkey's Low Debt-to-GDP Ratio
There are several structural and political factors behind Turkey's relatively low debt-to-GDP ratio. Understanding these factors is crucial in assessing Turkey's fiscal structure. After the 2001 crisis, tighter fiscal discipline and spending controls marked a turning point in Turkey’s debt story. Under these reforms, measures such as ensuring budget discipline, improving the efficiency of public spending, and tightening borrowing policies were implemented. As a result, the growth of public debt stock relative to GDP slowed, and a downward trend in the debt-to-GDP ratio was observed.
Private sector foreign-currency debt, about 40% of GDP, partly offsets this advantage. The private sector's high external debt continues to pose a significant risk to macroeconomic stability.
High inflation raises GDP in lira terms, lowering the ratio. But since real growth hasn’t kept pace, this is only a statistical effect.
The Effects of Low Debt Ratios on the Economy and an Assessment Specific to Turkey
Turkey’s low debt ratio brings both advantages and drawbacks for the economy. The most significant positive effect is that the risk of a debt crisis is relatively low. Highly indebted countries can experience serious crises in the face of economic shocks. Greece's debt crisis in 2009 is a striking example of this situation. Turkey's low debt ratio acts as a buffer against such risks, contributing to economic stability.
This confidence helps Turkey borrow more easily and at lower costs, with positive effects on credit ratings. It also allows extra borrowing in crises, as seen during the pandemic.
However, there are also negative aspects to the low debt ratio. First, the importance of the debt structure must be emphasized. If the share of foreign currency debt is high, an increase in the exchange rate can rapidly increase the debt burden. This situation can quickly negate the advantages provided by the low debt ratio. Second, high private sector debt overshadows the low public debt. The fact that companies' external debt is approximately 40% of GDP poses a significant risk to the economy.
Equally important is whether borrowing creates real value. When used mainly for deficits instead of long-term investment, debt barely contributes to growth and risks burdening future generations.
Reasons for the US Maintaining Stability Despite High Debt Levels
There are a number of structural and strategic factors behind the US's ability to maintain economic stability despite its debt-to-GDP ratio of 124%. Understanding these factors is important in showing that the debt-to-GDP ratio alone is not a sufficient indicator. Because the dollar is the world’s reserve currency, the US can borrow and repay debt in its own currency, which is a unique advantage. Monetary policy flexibility and deep financial markets enable liquidity provision during periods of stress.
Another key factor is the US’s ability to borrow cheaply, since Treasuries — government debt instruments issued by the United States Department of the Treasury — are widely considered the safest assets in global markets. This reputation keeps borrowing costs low and, with dollar strength, even lower in real terms.
The US also directs major resources to growth areas like R&D, defense, and infrastructure. This strategy ensures that debt contributes to long-term economic growth and increases debt sustainability. The US’s deep capital markets add flexibility in debt management.
The US economy’s size, diversity, and the dollar’s dominant trade role make debt servicing easier.
Geopolitical weight and global role strengthen the demand for the dollar and its borrowing capacity. Its central role in the global security architecture supports the dollar's reserve currency status, which in turn increases its borrowing capacity. Furthermore, the pricing of strategic commodities such as oil in dollars helps maintain the dollar's value.
Optimal Borrowing Strategy and Policy Recommendations for Turkey
An optimal borrowing strategy is vital for Turkey’s stability. Debt should target long-term projects like factories, energy, or R&D, which enhance sustainability by paying for themselves.
The second condition is that borrowing may be more favorable if done in Turkish Lira (TL) and at reasonable interest rates. The exchange rate risk associated with foreign currency borrowing poses a significant vulnerability for the Turkish economy. Therefore, priority should be given to borrowing in TL from the domestic market and increasing local savings. Additionally, controlling inflation is essential for reducing borrowing costs.
Thirdly, the borrowing strategy should ideally be consistent with economic growth. Sustainable growth reduces the debt burden by increasing debt servicing capacity. Aligning the two ensures that borrowing strengthens fiscal stability. Investments in sectors that support growth will reduce the ratio of debt to GDP over time.
However, Turkey's current situation is not sufficient to meet all these conditions. Foreign currency debt risk makes new borrowing dangerous, while high inflation and interest rates push costs up. These structural issues must be resolved first.
A more viable strategy could be phased: first, reduce currency risk, then shift toward lira debt, and finally fund investments transparently. First, the structure of the existing debt stock should be improved, and foreign exchange risk should be reduced. In the second phase, borrowing should be structured in Turkish lira for the long term. Third, borrowing revenues should be channeled into productive investment projects. Finally, debt must be managed with transparency and accountability.
SWOT Analysis of Turkey
Conclusions and Recommendations
A low debt-to-GDP ratio supports stability, but it must be reinforced by the right policies. Structure, cost, and purpose of debt matter more than the ratio itself.
A key priority could be lowering the risks arising from foreign currency debt.
Encouraging borrowing in Turkish Lira and increasing domestic savings will play a key role in managing this risk. Second, borrowing revenues must be directed toward productive investments. Investments in infrastructure, technology, and human capital will increase the contribution of debt to economic growth.
Thirdly, the private sector's external debt risk must be managed. Monitoring companies' foreign exchange positions and developing risk management tools will help ensure financial stability. Furthermore, the fact that the US model cannot be directly applied in Turkey must be accepted, and policies appropriate to local dynamics must be developed.
Ultimately, Turkey’s debt strategy needs to focus on long-term interests, not just short-term fixes. The low debt-to-GDP ratio provides an important starting point for implementing this strategy. However, making this advantage permanent depends on the implementation of structural reforms and sustainable macroeconomic policies.
Written by: Onat Uzkan
Edited by: Defne Taykurt