World Economy

Turkey’s Debt Outlook Cut

A board shows exchange rates at a foreign currency shop in central Istanbul.A board shows exchange rates at a foreign currency shop in central Istanbul.

Ratings agency Fitch has affirmed its sovereign rating on Turkey at ‘BBB-’, the lowest investment grade, but lowered its outlook to negative from stable in a review after last month’s attempted military coup.

Investors have been rattled by both the failed July 15 putsch, when a group of rogue soldiers attempted to overthrow the government, and the widespread crackdown that has followed, with the arrests or dismissals of tens of thousands of people, France24 reported.

“An unsuccessful coup attempt in July confirms heightened risks to political stability,” the Fitch statement said, saying a purge of some 70,000 public sector workers “generates uncertainty over capacity and continuity”.

“Political uncertainty is expected to impact economic performance and poses risks to economic policy,” it added.

Both Fitch and Moody’s rate Turkey at the lowest investment grade rung, allowing its bonds to be bought by more conservative funds that require a country to be classed as investment grade by at least two agencies.

Moody’s said on July 18 it was putting Turkey’s credit rating on review for a possible downgrade to junk status.

Standard & Poor’s cut its unsolicited rating on Turkey further into junk territory last month and changed its outlook to negative, also citing concerns following the coup.

Fitch said the overwhelming public opposition to the coup attempt and subsequent unity of most political parties could lessen political fractures.

  Security Worsens

But security conditions have worsened, it said, referring to militant attacks which it said were having a material impact on the tourism sector.

Fitch said revenues from tourism arrivals were down 41% year-on-year for the first half of 2016, a sector which accounts for 13% of external receipts.

“Growth is forecast to dip due to lower investment,” the statement said, “although a strong start to the year means that, at a Fitch-forecast 3.4% of GDP in 2016, it will be above the peer median.”

It did not expect the fiscal stance to weaken in response to the coup attempt, though “the central bank and commercial banks are facing renewed political pressure on interest rates,” it said.

A downgrade could be triggered by prolonged or deepened political instability, insecurity or geopolitical stresses that undermine economic performance or economic policy credibility, it added.

Societe Generale analysts on Friday said Turkey’s economy has proved resilient in the face of the coup attempt and subsequent emergency and crackdown in the pursuit of coup plotters.  The iShares MSCI Turkey exchange-traded fund was up 0.6% for the week, but is up nearly 5% in August along with a 2% rise in the Turkish lira against the US dollar. Akbank shares are up more than 8% in August and Turkiye Garanti Bankasi shares are up 6.7%, while shares of telecom Turkcell Iletisim Hizmetleri are down 0.6%.