S&P says Turkey is one of most vulnerable to capital outflows.

By bne IntelliNews March 6, 2014

Turkey is one of the most vulnerable emerging market countries to capital outflows, Standard & Poor’s (S&P), said in a report.

S&P ranked Turkey as the third-most vulnerable to shifting capital flows, due to its high external financing needs, external debt levels and deficit, after Ukraine and Ghana.

S&P does not currently expect the impact of the current market conditions to lead to widespread sovereign rating actions, the rating agency said, adding that in fact, it believes the current conditions for government bond markets now better reflect underlying fundamentals. The key risks for ratings on emerging market sovereigns are not U.S FED’s tapering and its effects, but domestic policy choices and implementation, according to S&P.

The downside risks to EM sovereign ratings are not negligible, indeed, many of its ratings on these sovereigns carry a negative outlook, reflecting its view that there is at least a one-in-three chance of a downgrade, S&P said.

S&P revised the outlook on Turkey's BB+ rating to negative from stable in February, citing the risk of a hard landing. Turkey’s policy environment is becoming less predictable, and this could weigh on the economy's resilience and long-term growth potential, S&P said, stressing that low and largely local currency-denominated general government debt provides significant buffers.

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