Istanbul: Turkish Treasury and Finance Minister Mehmet Simsek called on Wednesday for a stronger role for Islamic finance in channeling capital toward development priorities, saying global capital flows are increasingly detached from the real economy. Speaking at the Global Islamic Economy Summit in Istanbul, Simsek highlighted that while global foreign direct investment figures may appear to be rising, much of the increase is linked to flows between financial centers rather than productive investment.

According to Anadolu Agency, Simsek emphasized that 'finance appears to be increasingly detached from the real economy,' underscoring that Islamic finance offers a more suitable model due to its asset-backed nature and risk-and-reward sharing principle. Simsek noted that the share of emerging and developing economies in global FDI has decreased from 67% to about 54% over the past three years, attributed to factors such as geoeconomic fragmentation, reshoring pressures, industrial policy measures, and supply chain reconfiguration.

The minister stressed the necessity of reconnecting capital with development priorities, pointing out that although Islamic finance assets have experienced a nearly 49-fold increase in nominal dollar terms since 2000, their share of global financial assets remains relatively small. Simsek revealed Trkiye's ambition to climb from ninth to the top five among countries by Islamic financial assets, urging for more diversified products, stronger liquidity, and greater innovation in the sector.

Simsek also addressed Trkiye's economic program, reaffirming the government's commitment to price stability, fiscal discipline, and a sustainable external balance. He acknowledged that disinflation is happening at a slower pace than expected due to domestic and external shocks and projected that inflation will end the year in the mid-20s or possibly high-20s, contingent on oil prices staying around $90 per barrel.

Trkiye's budget deficit stood at 2.9% of GDP last year, compared to about 6% for the emerging-market average, while government debt was 24% of GDP against an emerging-market average of 74%. Simsek mentioned that Trkiye's current account deficit is anticipated to rise due to higher oil and gas prices but will remain manageable at about 3% of GDP. He also stated that Trkiye has adequate reserves, with external debt as a share of GDP trending down toward the low-30% range.

Simsek outlined new measures to attract investment, capital, and talent to Trkiye, noting a recent bill that reduced the corporate tax rate for manufacturers in industry and agriculture to 12.5%, one of the most competitive rates among global emerging markets. The country also introduced a 100% tax exemption on service exports and zero corporate income tax on transit trade for companies in the Istanbul Financial Center, with a 95% tax exemption outside the center.

Highlighting Trkiye's economic resilience, Simsek emphasized its large and growing economy, strong connectivity, manufacturing base, services capacity, and labor force. Trkiye ranks as the world's 16th-largest economy by GDP at current exchange rates and 11th-largest by purchasing power parity, with a PPP-adjusted GDP above $4 trillion. He concluded by reaffirming Trkiye's commitment to regional integration and connectivity through projects like the Development Road with Iraq, the Middle Corridor, and potential new routes linking Trkiye with Saudi Arabia and the Gulf region.