Istanbul: Turkey on Saturday said it was addressing the concerns of financial markets about its economy after Moody’s said it could further downgrade the credit rating on the ability of the government to pay back its debts.
Moody’s, which had already downgraded Turkey’s ratings to Ba2 in March, said it was placing the assessment on review for a possible new downgrade due to uncertainty about the future direction of economic policy.
Turkey is in the throes of a campaign for June 24 elections where President Recep Tayyip Erdogan is seeking a new mandate and a thumping parliamentary majority.
But the campaign is shadowed by concerns about the economy at home and abroad, with the lira under constant pressure, the current account deficit bloated and inflation well into double digits.
“We are addressing market concerns through credible policy actions,” Deputy Prime Minister Mehmet Simsek, the government’s pointman on the economy, wrote on Twitter after the downgrade review was announced.
He said these actions included a “tightened and simplified” monetary policy, a tighter fiscal policy and speeding up reforms after the elections.
But Moody’s said “mounting uncertainty” about the future direction of economic policy as the election looms was “raising the risk of severe pressures on Turkey’s balance of payments”.
It said that the “recent erosion” of investor confidence in Turkey would continue if there were no “credible policy actions” after the elections.
Limited progress
It said the Turkish lira had lost 20 per cent in value over the last three months while the current account deficit had widened to an estimated 6.5 per cent of GDP.
“The authorities have made limited progress in addressing Turkey’s structural economic problems ... in recent years,” it said.
The lira has also not been helped by comments from Erdogan that he intends to hold greater sway over the nominally independent central bank and also his unorthodox opinion that lower interest rates can bring down inflation.
Moody’s acknowledged that Turkey — which came to the brink of financial meltdown in 2001 — has managed serious economic shocks before.
But it warned: “The fact that economic and financial vulnerabilities are rising in parallel with an increasingly unpredictable political situation and rising global interest rates heightens the threat.”
According to Moody’s, Ba grade ratings are judged to be speculative and are subject to substantial credit risk. The bonds issued under such ratings are thus judged by investors to be “junk”.
