Fitch affirms Turkey’s ratings, outlooks stable

By bne IntelliNews February 29, 2016

Fitch on February 26 affirmed Turkey's Long-term foreign and local currency Issuer Default Ratings at 'BBB-' and 'BBB', respectively, in a widely expected move. The outlooks are stable.

The “BBB-” is the lowest investment grade.

Fiscal discipline remained in place last year despite two parliamentary elections, the rating agency said in a statement. “The implementation of pre-election spending commitments is expected to worsen the fiscal position in 2016, with the central government deficit expected to widen to 2% of GDP, but debt/GDP will remain on a downward path,” the rating agency said, adding that refugee and security expenses pose expenditure pressures.

Fitch also warned that the geopolitical scene has worsened and external vulnerabilities are a key credit weakness. “Turkey's involvement in the conflict in neighbouring Syria and the breakdown of the Kurdish peace process appear to have triggered several high-profile terrorist attacks claiming multiple fatalities.”

Fitch expects Turkey’s current account deficit to shrink to a seven-year low of 3.5% of the country’s GDP at the end of 2016,.

The rating agency forecasts “a slight moderation” in growth to around 3.5% in 2016. Growth will be consumption-driven, reflecting the hike in the minimum wage, lower oil prices and a fairly loose policy stance, according to Fitch. It argues that the impact of Russian sanctions will be gradually offset by deeper economic relations with Iran and a modest strengthening of the Eurozone.

Fitch assumes that pressure from recent currency depreciation and the minimum wage hike will push inflation into double digits during 2016.

A materialisation of stress stemming from external financing vulnerabilities, prolonged and deepened political stability as well as insecurity and geopolitical stress could trigger negative rating action, Fitch warned.

But, conversely, it said, implementation of structural reforms that deliver higher gross domestic savings, a more flexible labour market and greater foreign direct investment to help address external imbalances could result in positive rating action. Fitch also mentioned a more stable and predictable domestic political and security environment and a more coherent and predictable monetary framework as factors that could trigger positive rating action.


Related Articles

Erdogan says he plans talks with lenders on cutting Turkish interest rates

Turkey's President Recep Tayyip Erdogan said on October 13 that he plans to hold talks with both public and private lenders on how to lower interest rates. He did not say, however, when those ... more

Turkey's Erdogan turns fire on US ambassador in diplomatic spat over arrest

Turkish President Recep Tayyip Erdogan has turned his fire on the US ambassador to Turkey for the ... more

Turkey-based Eurasian development bank ETDB signs memo to boost return to Iran

The Central Bank of Iran (CBI) and the Turkey-based ECO Trade and Development Bank (ETDB) have signed a memorandum on strengthening bilateral ties, the CBI said on October 10. ETDB is a Eurasian ... more