Turkey's Sovereign Credit Outlook Improves
Turkey's sovereign credit ratings remain mixed but show a stable to positive outlook from major agencies as of February 2026. S&P rates the country at 'B' with a positive outlook, while Fitch rates it 'BB-' also with a positive outlook. Despite modest improvements, the high interest rate environment and currency volatility continue to pose challenges for investors.
- The Central Bank of the Republic of Turkey (CBRT) has been in an easing cycle, cutting its benchmark policy rate in January 2026 to 37%. This follows several reductions in late 2025, bringing the rate down from 39.5% in October. Market participants surveyed in December 2025 anticipate the policy rate will be around 28.15% within the next 12 months. - Accompanying the credit outlook improvement, the government has launched new investment incentives in 2025, including the "Turkey Century Development Initiative" which targets high value-added manufacturing, R&D-intensive projects, and green and digital transformation. The government also plans a $2 billion investment package for high-tech sectors like biotechnology, industrial robotics, and data centers. - Despite a more challenging global environment, venture capital investment in Turkish startups reached $589 million across 306 deals in 2025. While this represents a 45% decrease in capital from 2024, fintech and gaming were strong performers, capturing 68% of all capital deployed. However, a notable challenge is the lack of Series C or later-stage investments, indicating a weakness in the late-stage funding pipeline. - Artificial intelligence is a dominant focus for both investors and corporations; AI startups accounted for one-quarter of all investment deals in 2025. A survey of Turkish technology leaders revealed that 43% plan to invest in AI in the near term, making it the top investment priority. - The government is actively fostering the startup ecosystem with a goal of achieving 15 "Turcorns" (unicorns) by 2025. Initiatives like the TÜBİTAK BiGG Investment program support entrepreneurs from the idea stage to market, aiming to create technology-based companies that can compete internationally. - Inflation remains a key challenge, with the central bank revising its year-end 2026 inflation forecast range upward to 15-21%. Annual consumer inflation stood at 30.65% in January 2026, driven in part by volatility in food prices. - The Turkish Lira appreciated by 18% against the US Dollar in 2025, reducing currency risk for international investors. This stabilization is a key factor in improving investor confidence and is expected to benefit sectors like real estate by attracting more foreign interest. - For tech startups, Turkey offers significant tax incentives, including an 80% deduction on profits from software and design services exported to foreign clients, effectively lowering the corporate tax rate on these earnings to around 5%. Companies established in Technoparks can receive even greater benefits, including a 100% exemption from corporate tax on R&D profits.
