Economists expect Moody's to maintain Turkey's rating

ANKARA

Economists expect U.S.-based credit rating agency Moody's to make no changes to Turkey's rating in its new report due Friday.

On Dec. 5 last year, Moody’s gave Turkey a “Baa3” credit rating, which it said reflected “the country’s economic resilience and strong fiscal metrics, which have been maintained through the long electoral cycle.”

“The government’s low debt ratio is broadly stable after falling over the past decade, and the debt structure is favorable showing relative resilience to Turkish lira's weakness and forthcoming global interest rate increases,” Moody’s had also said.

Odeabank Economic Research and Strategy Department Director Ali Kirali told Anadolu Agency Wednesday that there was now a reduced risk of external financial challenges in Turkey.

“Turkish economy’s resilience and strength got tested in 2015, but it successfully got through unscathed with strong growth performance; now signs of monetary policies coordinated with global monetary policy stance and low interest rates reduce the risk of external finance challenges,” Kirali said.

Although there have been some small changes since Moody’s report last year, Kirali expects Moody’s to consider recovery in global capital flows, decline in current account deficit and improvement in short term inflation outlook as positive elements for the Turkish economy.

“[However], in addition we think that limited progress in structural reforms may be subject to criticism. Also, it might be pointed out that challenges due to terrorism, which is a global phenomenon, and geopolitical tensions might pose difficulties in the tourism sector and create risks for the Turkish economy.” he said.

“In light of these dynamics, in its report due on April 8 [Friday] we expect Moody’s to leave Turkey’s negative outlook and its credit note at Baa3 on hold, stressing that balance between the risks in both directions did not show a significant change,” he said.

Deniz Invest Chief Economist Ozlem Derici echoed Kirali’s remarks, pointing out improvements in inflation and better than expected growth performances.

“Compared with the last assessment [Moody’s], growth, inflation outlook is better, external financing conditions improved and political risks declined,” Derici said Wednesday.

However, she warned that geopolitical risks and uncertainty regarding the appointment of a new central bank governor in April might be the biggest challenges for a change to a positive outlook from the current negative outlook.

Finansinvest Chief Economist Burak Kanli also said Wednesday that a strong growth, tightly-controlled public finances and decline in current account deficit positively affects all assessments on Turkey, which offset setbacks sourced from persistently high inflation and geopolitical tensions.

"When we consider all of these elements together it does not seem sufficient to change credit notes. Moody's will emphasize those elements. In addition, as mentioned in almost all previous reviews, it will continue to emphasize Turkey's fragility against slowing capital inflows," Kanli said.

Roubini Global Economics EMEA Region Senior Economist Maya Senussi said Wednesday that a negative report is unlikely, reminding Moody’s recent positive report over Turkey’s strong growth performance and robust public finance structure.

“I expect Moody’s to re-affirm Turkey’s Baa3 rating and "negative" outlook on Friday. Recent positive comments about Turkey’s growth outlook and strong government’s balance sheet imply low chance of an imminent downgrade, despite challenging external financing and persistent geopolitical risks.” Senussi said.

She also mentioned a possible upgraded outlook to positive.

“In fact, the possibility that they might upgrade Turkey’s outlook to neutral has increased, though they will probably err on the side of caution and refrain from doing it in this review,” she added.