Moody’s: Weaker exchange rate credit negative for countries with large external debt payments, including Turkey

By bne IntelliNews March 23, 2015

A weaker exchange rate is credit negative for countries with large pending external debt payments, such as Turkey, Malaysia and Chile because it raises the cost of repaying and refinancing foreign currency debt and suggests shrinking foreign reserves to meet external obligations that are difficult to refinance, said Moody’s on March 23 in a report titled “US Dollar Strength Hurts Countries with Large External Financing Needs”.

In recent weeks, the strengthening US dollar has prompted a sharp currency depreciation and/or a significant decline in the foreign exchange reserves of a number of countries, said Moody’s, adding that to the extent that these fluctuations reflect capital outflows or significantly lower external inflows, they are credit negative for countries with large external funding needs. Countries with sizable current account deficits, such as Turkey (Baa3 negative), are vulnerable to weaker external net inflows, because this would point to potential difficulty in financing deficits, underlined Moody’s. The rating agency also noted that reserve buffers are very low in Turkey.

Foreign exchange pressure is similar in magnitude to the 2013 Taper Tantrum in mid-2013, when financial markets first adjusted to the possibility of a less accommodative US monetary policy, said Moody’s in the report.

Here are the other highlights from the report:

* Countries with large current account deficits are exposed, including Turkey

* These countries are vulnerable to further negative changes in portfolio flows and foreign direct investment and associated exchange rate pressure

* Higher external debt repayments are an additional risk for some countries, Turkey is particularly exposed with an EVI at 176% in 2015 (External Vulnerability Index (EVI), the ratio of each country’s repayments of external debt -both in foreign and domestic currency- over the next year to reserves)

Related Articles

Hungary finally joins the negative yield club

Hungary finally joined the negative yield club on March 21 as Government Debt Management Agency AKK  accepted a bid of -0.01% at an auction of 3-month T-bills. Hungarian yields have been on ... more

S&P improves Russia's outlook to Positive

Standard & Poor's improved the outlook on Russia's sovereign ratings from Stable to Positive, while affirming the 'BB+/B' foreign currency rating and 'BBB-/A-3' local currency rating, the agency ... more

IMF delays new $1bn tranche to Ukraine due to Donbas blockade

Ukraine's main donor, the International Monetary Fund (IMF), has cancelled a board meeting scheduled for March 20 that was expected to see the release of a $1bn tranche to Ukraine, while demanding ... more

Register here to continue reading this article and 2 more for free or purchase 12 months full website access including the bne Magazine for just $119/year.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

If you have any questions please contact us at sales@intellinews.com

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at sales@intellinews.com

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.

Dismiss