Late on Friday, rating agency Moody’s cut Turkey’s sovereign credit rating to Ba1 or “junk” from Baa3, citing worries about the rule of law after an attempted coup and risks from a slowing economy, in a move that could deter billions of dollars of investment. “The drivers of the downgrade are … the increase in the risks related to the country’s sizeable external funding requirements (and) the weakening in previously supportive credit fundamentals, particularly growth and institutional strength,” Moody’s said in an e-mailed statement. “The government’s response to the unsuccessful coup attempt raises further concerns regarding the predictability and effectiveness of government policy and the rule of law.”
“The large-scale suspensions in the civil service raise doubts over the capacity of Turkey’s policy-making institutions to make meaningful further progress in both legislating and implementing the reform program,” Moody’s said.
Moody’s did however keep its rating outlook “stable,” saying Turkey’s flexible $720 billion economy and strong fiscal track record offset the balance-of-payments pressures it faces. As Reuters notes, Turkey depends on investment flows to fund its current account deficit – one of the biggest in the G20 – and service its foreign debt. Ratings downgrades could force it to pay more to borrow money in international markets.
This post was published at Zero Hedge on Sep 26, 2016.
Follow on Twitter
Recent Comments