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2.0 Politics
2.1 S&P affirms Turkey at four notches below investment
grade with stable outlook
S&P Global Ratings has affirmed its unsolicited long-term foreign currency sovereign credit rating on Turkey at 'B+', four notches below investment grade, the rating agency said on July 24.
The outlook remained stable.
It was S&P’s second and last 2020 scheduled rating review for Turkey. Fitch Ratings’ second rating review release for Turkey is expected on August 21. Moody Investors Service’s second review is scheduled for December 4.
Moody’s Investors Service previously scheduled a Turkey sovereign rating review for June 5 but that date has been put back. In its latest rating action on Turkey, in June last year, Moody’s issued a downgrade to B1, four notches below investment grade, with a negative outlook.
Moody’s downgraded on June 15 Turkey’s flag carrier, Turkish Airlines, to B3/Negative, six notches below investment grade. It also sees Turkish lenders at six notches below investment grade with negative outlooks.
Fitch Ratings rates Turkey at BB-/Stable, three notches below investment grade. Moody’s Rating Services rates Turkey at B1/Negative, four notches below investment grade.
According to its latest rating assessment, S&P expects the Turkish economy to contract by 3.3% in real terms this year, due to the impact of the coronavirus (COVID-19) pandemic. It now expects that this summer's tourism season in Turkey is likely to be largely lost while the country’s exports will contract by 12% in real terms or around 20% in dollar terms this year.
It also forecasts both Turkey's domestic consumption and investments will contract, reflecting high uncertainty; diminished consumer purchasing power; and a weaker Turkish lira, which will increase the burden of servicing foreign-currency-denominated debt and thereby limit the scope for investments.
Although it expects economic growth to recover in the second half of 2020, “there are signs of past imbalances re-emerging, including the rapid pace of credit growth, double-digit inflation, and a widening of the current account deficit in recent months.”
Nevertheless, unless Turkish banks require large-scale public support, S&P forecasts that by end-2020, net general government debt will amount to a contained 35% of GDP, leaving fiscal room to manoeuvre.
Close to half of government debt is denominated in foreign currencies, S&P also noted.
S&P could lower Turkey’s ratings if it saw a sustained re-emergence of macroeconomic imbalances, such as a persistently high pace of credit growth and the current account deficits widening by more than its forecasts.
“Such imbalances, in turn, would increase the likelihood of banking system distress, which implies contingent liability risks for public finances,” it said.
5 TURKEY Country Report August 2020 www.intellinews.com
