Fitch affirms Turkey's rating at 'BBB-'; outlook stable

HOUSTON

The Fitch credit rating agency on Friday affirmed Turkey's long-term foreign and local currency issuer ratings at 'BBB-' and 'BBB', respectively, with a stable outlook.

"The issue ratings on Turkey's senior unsecured foreign and local currency bonds have also been affirmed at 'BBB-' and 'BBB', respectively, while the country ceiling has been affirmed at 'BBB' and the short-term foreign currency at 'F3'," Fitch said.

Noting that despite holding two parliamentary elections in 2015, Fitch said Turkey's fiscal discipline remained in place.

While the central government deficit narrowed to 1.2 percent of GDP, from 1.3 percent in 2014; general government debt ratio to GDP fell to 32.6 percent at the end of 2015. But Fitch warned that central government deficit could widen to 2 percent of GDP this year.

Fitch emphasized that geopolitical scene has worsened for Turkey due to its involvement in Syria, breakdown of the Kurdish peace process, terrorist attacks and the military incident with Russia.

However, the agency said the AK Party's triumph in elections has "eased domestic political uncertainty".

The rating agency stressed that a key credit weakness is external vulnerabilities for Turkey, such as net external debt is large at 38.4 percent of GDP at end of 2015, and gross external financing requirements are estimated to be $197 billion in 2016.

On the bright side, Fitch noted that Turkey's reliance on short-term borrowing has declined due to macro-prudential policy, and added that Turkish banks have sufficient sources of foreign exchange liquidity against financial shocks.

Although foreign exchange reserves fell by $12.5 billion last year, they were still high at $115.1 billion at the end of 2015.

"Growth is comfortably in excess of peers, averaging 4.4 percent over 2011-2015. Fitch forecasts a slight moderation in growth, to around 3.5 percent in 2016 and 2017, and growth will be consumption-driven, reflecting the hike in the minimum wage, lower oil prices and a fairly loose policy stance," Fitch said.

"Inflation and inflation volatility are well in excess of peers ... the banking system is consistent with Turkey's investment grade rating, with a 'bbb', and banks are well regulated and profitable," the agency concluded.