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TURKEY-CREDIT-RATING-ECONOMY-FITCH
Fitch downgrades Turkish debt rating to ‘BB,’ outlook negative
WASHINGTON, July 14, 2018 (BSS/AFP) – The ratings agency Fitch on Friday
downgraded Turkish sovereign debt a notch to ‘BB’ with a negative outlook,
citing inflation and widening current account deficit.
The decision followed S&P’s move in May to cut the country debt ratings,
likewise amid concerns about Ankara’s worsening finances and weakening
currency.
Recent actions by President Recep Tayyip Erdogan that could weaken central
bank independence meant stewardship of the economy could suffer, Fitch said
in a statement.
“In Fitch’s opinion, economic policy credibility has deteriorated in
recent months and initial policy actions following elections in June have
heightened uncertainty,” Fitch said in a statement.
“This environment will make it hard to engineer a soft landing for the
economy.”
Fitch said trouble was on the horizon for Turkey’s economy. Annual
inflation hit a 15-year high last month of 15.4 percent, driven by the
falling lira, which has lost 27 percent so far this year.
While the central bank has raised interest rates by five percentage points
since April, Fitch forecasts inflation will be double that of other countries
in the ‘BB’ category.
The current account deficit is expected to widen to 6.1 percent of GDP
this year, but should decline to 4.1 percent next year by the weakening lira,
lower oil prices and a growing tourism sector.
And with foreign investment at a low ebb, the government will have to
resort to borrowing to finance the budget deficit, which is expected to drive
net external debt to 35 percent of GDP by year end.
“Turkey’s large gross external financing requirement leaves it vulnerable
to shocks,” the agency said, estimating external borrowing needs at $299
billion for 2018.
Meanwhile, the central bank’s credibility was “damaged” after Erdogan
suggested his government could take a greater role in setting monetary
policy.
“Subsequent amendments to the central bank’s articles of association
appear to strengthen the president’s influence, notably over key
appointments,” Fitch said.
BSS/AFP/HR/1000