Turkey’s fight against inflation under its new economic team brought in 16 months ago cannot be described as successful.

That was the opinion offered by Mehmet Sisman, an economics professor at Istanbul’s Marmara University, who was asked about progress in the inflation battle by AFP.

“The current drop [in inflation] is simply due to a base effect. The price rises over the course of a month is still high, at 2.97 percent across Turkey and 3.9 percent in Istanbul [in September]. You can’t call this a success story,” Sisman was reported as saying by the news agency on October 6.

Official annual inflation in Turkey this year peaked at 75.45% in May. On October 3, the official statistical body said that it stood at 49.4% in September although the ENAG inflation research group of independent economists estimated that it was actually 88.6%.

After his re-election in May 2023, Turkish President Recep Tayyip Erdogan agreed to a new economic team that set out to quickly drive up the key interest rate. It was raised from 8.5% to 50% between June 2023 and March this year. It has remained at 50% for six consecutive months.

But raising interest rates alone is not in itself enough to steady inflation without dealing with massive budget deficits, Yakup Kucukkale, an economics professor at Karadeniz Technical University, told AFP.

Highlighting Turkey’s record budget deficit of 129.6 billion lira (€3.45bn), he said: “[Finance Minister Mehmet] Simsek says this is due to expenditure linked to the reconstruction in regions hit by the February 2023 earthquake [catastrophe that killed tens of thousands and destroyed huge amounts of housing stock and infrastructure]. But the real black hole is due to the costly public-private partnership contracts.”

As previously reported by bne IntelliNews, Turkey’s government has provided a total of $153bn in income guarantees to PPP projects, the beneficiaries of which are typically business people close to the Erdogan administration. The guarantees include $78bn for city hospitals (to be paid from 2021 to 2045), $35bn for the Akkuyu nuclear plant project (2021-2035) being built by Russian contractors, $32bn for highways and bridges (2021-2042) as well as $7bn for airports (2021-2042), according to calculations made by Ugur Emek of Baskent University.

“We should question these contracts, which are a burden on the budget because this compensation is indexed to the dollar or the euro,” Kucukkale was further quoted as saying.

Various economists not impressed with gains made so far by Turkey in its duel with rampant inflation have pointed out that hitting the low-income population with a fiscal squeeze, such as by not providing a mid-year rise in the minimum wage, is not effective if not combined with measures that will hit the wealthly such as tackling the "PPP black hole".