Turkey’s shift policies ‘clearly’ positive for credit rating

Shutterstock/Evren Kalinbacak

Moody’s has signalled that Turkey’s re-embrace of conventional economic policymaking since Tayyip Erdoğan’s May election win could soon start paying dividends in terms of a stronger credit rating, as long as it sticks with it.

Ankara’s credit score, which affects how much the government pays to borrow on capital markets, has been in decline for years due to repeated episodes of unorthodox policy-driven crises.

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The screeching change of policy direction since the election though has seen Erdoğan bring in a new finance minister and central bank head who have dramatically raised interest rates in a bid to tackle the country’s long-term inflation problem.

“The change of course is clearly credit positive,” Moody’s analyst Dietmar Hornung told Reuters. “But there are still significant uncertainties.”

Moody’s rates Turkey a ‘junk’ grade B3 with a “stable outlook.” It is not due to formally review its rating until December, but Fitch which rates the country a notch lower and has a “negative outlook” is due to review its rating on Friday, followed by S&P Global later in the month.

“The moves we have seen since the election are encouraging but the challenges ahead are complex,” Hornung said, explaining that cooling inflation expected to rise to 65 percent this year, and unpicking other “accumulated imbalances,” was a tough task.

“We have a stable outlook on the rating, we don’t see any significant downside risks, but it will take time to see the positive effects of the changes”

On the possible timing of any rating move, either a move to a positive outlook or a full upgrade, Hornung said: “It’s not a sprint, it’s a marathon.”

“We need a track record of more orthodox policy and a reduction of the accumulated imbalances.”