Turkey has achieved a major milestone in its economic recovery efforts, securing a whopping $3.5 billion through its largest-ever single bond sale. The sale, announced on Thursday by the Turkish finance ministry, involved a 10-year dollar bond issued at a yield of 6.75 percent. This successful transaction is seen as a positive signal, bolstering investor confidence in Turkey’s economic direction.
This latest bond sale marks Turkey’s fourth international bond issuance this year. A key aspect of the deal involves investors swapping $1.9 billion of existing debt maturing through 2025 for the newly issued bond. This swap is significant as it demonstrates Turkey’s commitment to addressing its debt obligations and fostering a more stable financial environment.
The debt pricing of 3.98 percentage points, which is above the equivalent US Treasury note, signifies a calculated risk premium. However, investors have agreed to the lowest risk premium in six years on the new bond, indicating a growing level of confidence in Turkey’s economic reforms.
This successful bond sale comes on the heels of recent efforts by President Recep Tayyip Erdogan and top officials to attract foreign investors. During the United Nations General Assembly in New York, they actively engaged with executives and fund managers, highlighting Turkey’s economic progress and outlining their vision for the future.
The timing of this bond sale is particularly crucial as Turkey faced approximately $14.4 billion in external principal payments due in 2025. In recent years, Turkey has faced economic challenges stemming from unconventional economic policies. To address these challenges, Ankara has embarked on a comprehensive economic reform program, characterized by interest rate hikes and tax increases. This policy shift aims to curb excessive consumer demand and reduce inflation, which soared to over 85 percent in 2022.
The results of these reforms are already becoming evident. Inflation has been brought down to just above 50 percent. The central bank’s foreign currency reserves have been replenished, and all three major credit rating agencies have upgraded Turkey’s ratings. This positive trajectory bodes well for the country’s future economic prospects.
The success of this bond sale, combined with the ongoing economic reforms, is expected to significantly reduce Turkey’s foreign debt repayments in the near future. This is particularly crucial given the substantial principal payments due in 2025. The bond sale serves as a testament to Turkey’s commitment to fiscal responsibility and a stable economic future.
