Turkey's referendum may help 'revive' economic reforms

By Dilara Zengin

ANKARA

Turkey's Sunday referendum may help revive credit-positive economic reforms, and put economy back up the agenda, according to Fitch.

"Turkey's constitutional referendum is part of a political shift that has been negative for the country's sovereign credit profile, but may facilitate a revival of credit-positive economic reforms," the rating agency said in a statement on Tuesday.

Noting that new presidential and parliamentary elections were not required until late 2019, Fitch said "this timeframe should allow the economy to move back up the ruling AK Party's policy agenda".

Turkish voters went to the polls on Sunday to decide whether to approve changes to the country’s constitution that would usher in an executive presidency.

According to unofficial results, the Yes campaign won with 51.41 percent, while the No votes stood at 48.59 percent. Voter turnout was 85.46 percent.

Fitch recalled that Turkey's volatile political and security environment damaged economic performance in 2016.

"A better-than-expected fourth quarter of 2016 and revisions to nine months of 2016 outturns mean growth was stronger than we forecast, but it still halved to 2.9 percent," it said.

Fitch noted that the AK Party's economic reform program could not be fully implemented in recent years because of the fluid political backdrop and structural weaknesses.

Earlier this year, Fitch Ratings lowered Turkey's credit rating to "BB+", from "BBB-" with a stable outlook.

"Deputy Prime Minister Mehmet Simsek said before the referendum that the removal of political uncertainty would enable the government to 'accelerate reforms starting [in] May 2017' to improve Turkey's investment environment and the tax system," Fitch said.

"Successful economic reform was a feature of the first half of Erdogan's rule," it added.

Fitch said that the government might also loosen fiscal policy to lift growth, and praised the country's political commitment to fiscal prudence.