Page 8 - TURKRptAug20

Private-sector external debt rollovers have remained resilient despite financial market volatility as the pandemic took hold globally, but the fall in foreign exchange (FX) reserves since end-February, added to weak monetary policy credibility and negative real interest rates, increases risks of further external pressures.
At Fitch’s most recent rating review in February it affirmed Turkey's sovereign rating at BB-/Stable, three notches below investment grade. This reflected low FX reserves and a large external financing requirement.
Since then, there have been sizeable FX interventions to support the Turkish lira. Gross FX reserves (including gold) fell to $90bn as June 26 from $106bn at end-2019.
“If we calculate gross reserves minus swaps, there has been a much sharper fall, from $87bn at end-2019 to $33bn,” Fitch noted.
These trends highlight the underlying pressure on reserves, which has increased external vulnerability since February.
Recent policy on FX interventions suggests that Turkey's prior, long-standing commitment to a flexible exchange rate has weakened.
The marked increase in the proportion of reserves made up of FX swaps also creates a greater risk in the event of their large-scale withdrawal by banks.
However, the external financing positions of the banking and corporate sectors have been resilient. This resilience has been a supporting feature for Turkey's sovereign credit profile since the mid-2018 lira crisis.
Banks' orderly foreign currency deleveraging has continued and the rollover rate of 73% in April (on a rolling 12-month basis) was unchanged on 1Q20.
Foreign-currency bank deposits are still growing. The corporate sector has also steadily deleveraged and its external debt rollover rate was 84% in April on a rolling 12-month basis, unchanged on March.
Fitch forecasts a stabilisation of Turkey's balance of payments in 2H20, but there are sizeable downside risks.
Given the country's low level of reserves, Fitch does not anticipate further large net FX interventions by the central bank and it believes the policy interest rate easing cycle is nearing its end.
The resumption of government external debt issuance and a lighter redemption profile in 2H20 will have some stabilising effect on the external position.
But Fitch still sees a risk of further interest rate cuts contributing to renewed external pressure, even though the monetary policy committee held rates at 8.25% in the latest rate-setting meeting.
Fitch anticipates broad continuity in the policy response to managing balance of payments pressures. Should external pressures become much more acute, the policy response would be more uncertain.
2.3​ ​Corona scandals
8​ TURKEY Country Report​ August 2020 ​ ​www.intellinews.com
A Turkish canned food and sandwich maker’s plans to maintain production by keeping all workers under a coronavirus (COVID-19) quarantine on its premises for 14 days amount to holding employees “captive”, the head of a