Turkey’s public net debt stock rose by 43% y/y and 6% q/q to TRY232bn (€58bn) as of the end of March, the highest level registered since Q4 2012’s TRY240bn, the treasury said on June 30.

The public net debt stock had risen by 36% y/y to TRY219bn at the end of 2016 from TRY161bn at the end of 2015.

The government’s budget was stretched by a set of economic stimulus measures brought in during the build-up to the April 16 referendum that officially narrowly voted to bring in an executive presidency. Consequently, the deficit in the first five months of 2017 amounted to TRY11.5bn against the surplus of TRY9.07bn posted for the same period of 2016. The main concern, however, is still the fast expansion of the private sector's external debt.

The public net debt stock rose from 6.8% of GDP in Q1 2016 and 8.4% in Q4 2016 to 8.7% of GDP at the end of the first quarter of 2017, the highest level recorded since Q4 2014’s 9.1%, data from the treasury also showed on June 30.

The net debt/GDP ratio was 8.4% at the end of 2016, up from 6.9% at the end of 2015.

The EU-defined general government debt stock also rose by 19% y/y and 5% q/q to reach a record high of TRY773bn at the end of Q1, the treasury added on June 30 in a separate statement.

The EU-defined debt stock rose by 14% y/y to TRY733bn at the end of 2016 from TRY643bn at the end of 2015.

The EU-defined debt stock to GDP ratio also rose from 27.1% at the end of Q1 2016 and 28.3% at the end of Q4 2016 to stand at 28.9% at the end of March, the highest level recorded since Q3 2015’s 29.1%.

Turkey’s ratings are supported by the government's low debt burden and the expectation of only a modest accumulation of further liabilities on the government's balance sheet, relative to GDP, S&P Global Ratings said on May 5 when affirming its unsolicited 'BB/B' foreign currency long- and short-term sovereign credit ratings on Turkey with a negative outlook.

The public debt in both Russia and Turkey is set to rise over the next two years, although the increases will be modest as a share of GDP, Moody’s Investors Service said in report published last month.

Moody’s expected that the Turkish government “will be reluctant to withdraw its fiscal stimulus, which is propping up growth, leading to modestly rising debt-to-GDP ratios over the next two years. Fiscal strength nonetheless remains a key credit anchor”.

“A weakening of public and external finances reflected in a deterioration of the government debt/GDP ratio or heightened external financing vulnerabilities are negative rating sensitivities,” Fitch Ratings said on April 18.

Moody’s said in March that “weaker growth is negatively impacting Turkey's key credit anchor - its healthy public finances and low government debt.” Moody's expects the increase in government spending to continue into 2018, the fiscal deficit to widen and bond yields to continue to rise, with adverse implications for Turkey's debt metrics.

The European Commission (EC) forecasts Turkey’s general government gross debt will decline to 26.5% of GDP in 2017 from 28.3% in 2016 while the EC foresees the general government deficit reaching 1.6% of GDP in 2017 from 0.9% a year ago.

The World Bank expects Turkey’s general government debt to decline to 30.8% of GDP this year from 30.9% last year.