ISTANBUL\u2013One of the few bright spots in Europe, Turkey has bagged two credit-rating upgrades in as many years even as back-to-back debt crises have roiled world markets. Upgraded by Fitch Ratings to investment grade for the first time in two decades earlier this month, Turkish assets have surged to record highs amid growing investor confidence the economy has made the transition from perennial underachiever to regional superstar.<\/p>\n
But on Wednesday, Moody\u2019s Investors Service took some wind from Turkey\u2019s sails, stressing that lingering economic weaknesses meant it wouldn\u2019t bump Turkey to investment grade.<\/p>\n
\u201cIf you told me years ago that there would be a global financial debt crisis and a euro-zone crisis on Turkey\u2019s doorstep, and it would have come out of it fine, I would not have believed it,\u201d said Sarah Carlson, a London-based Moody\u2019s analyst who has been covering Turkey since 1995. Yet, she added during a conference in Istanbul, \u201cThere are still some challenges that remain.\u201d<\/p>\n
Turkey faces short-term financing risks due to lingering structural weaknesses, Moody\u2019s said, despite the improvements of the past decade\u2013when Turkey\u2019s gross domestic product more than tripled to $780 billion, its debt ratio halved to 37% of economic output, and inflation slowed to single digits from more than 33%.<\/p>\n
Added to the country\u2019s large external imbalances is geopolitical risk, which may fuel international investors\u2019 risk aversion and make it difficult to finance the country\u2019s large current-account deficit, according to Moody\u2019s. The events of the Arab Spring that culminated in the Syrian conflict is already spilling over the southern border of Turkey, a member of the North Atlantic Treaty Organization that may request Patriot missiles from the alliance to defend against threats from President Bashar al-Assad\u2019s forces.<\/p>\n
Meanwhile, even as the gap in Turkey\u2019s balance of payments declined to $55.8 billion from a record $78 billion in October 2011, economists say it\u2019s unsustainably wide at more than 7% of GDP and needs to be less than 5%.<\/p>\n
\u201cThe current-account deficit has very strong structural elements to it, that means that beyond a certain point large reductions to the current account deficit become difficult without policy actions,\u201d Ms. Carlson said.<\/p>\n
Still, the markets largely shrugged off economic and diplomatic risks leading to the Nov. 5 by Fitch decision raising Turkey\u2019s credit quality to investment grade, with the rating at BBB- with a stable outlook, and sending the benchmark Istanbul Stock Exchange 100 index and two-year government bonds rallying to record levels.<\/p>\n
Moody\u2019s, which rates Turkey one step below investment grade at Ba1 with a positive outlook and insists on stronger balance-of-payments, dampened hopes for a second upgrade that would have unleashed a flood of cash from fund managers, who typically require investment-grade ratings from at least two of the three leading agencies. Standard & Poor\u2019s Ratings Services rates the country two steps below investment grade at BB with a stable outlook.<\/p>\n
\u201cMoody\u2019s missed a trick,\u201d said Tim Ash, head of emerging market research at Standard Bank Plc in London. \u201cDisappointing given the Fitch move to investment grade a couple of weeks ago \u2026 I have given up trying to understand rating agency logic where actually paying one\u2019s debts does not count for much\u2013Turkey probably would be investment grade now, like Russia, if it had defaulted in 2000-2001 rather than paid. But there you go.\u201d<\/p>\n
Ankara did not immediately respond to the Moody\u2019s decision but it is no secret that there is little love lost between Turkey\u2019s policy makers and ratings firms.<\/p>\n
Turkish cabinet ministers and central-bank officials have long bemoaned raters\u2019 stance on its fast-growing economy, stressing that Turkey\u2019s credit rating is too low. Ankara has repeatedly fulminated against Fitch Ratings, Moody\u2019s and S&P\u2019s, hurling accusations of an anti-Turkish bias in their sovereign-ratings analysis. After Fitch lowered Turkey\u2019s outlook in November, Economy Minister Zafer Caglayan said the company couldn\u2019t be independent since it was 60% owned by French investors.<\/p>\n
In June, Turkey\u2019s cabinet reacted furiously to S&P\u2019s cut in Turkey\u2019s outlook to stable from positive, with Prime Minister Recep Tayyip Erdogan accusing S&P of making an \u201cideological decision\u201d and threatening to withdraw Turkey\u2019s recognition of the agency as a legitimate credit institution.<\/p>\n
Yet, Moody\u2019s report is still broadly positive, forecasting that the economy will expand 3% this year and 3.8% in 2013 and suggesting that Turkey could secure a sovereign upgrade in the months ahead. During the same period, inflation will slow to 7.8% from 8% and the current-account deficit will drop to 7.4% of GDP from 7.8%, the New York-based firm\u2019s forecasts show.<\/p>\n
The country also is still subject to volatile growth cycles, Ms. Carlson said on Wednesday. Indeed, Turkey\u2019s economic growth is slowing significantly from last year\u2019s 8.5%, which was third only to China and Argentina among the world\u2019s major economies.<\/p>\n
But there\u2019s still more to be optimistic about than with virtually any other European sovereign: Prime Minister Recep Tayyip Erdogan\u2019s government can boast of rising financial strength backed by a strong balance sheet and declining public debt ratios that can withstand even more stressful economic circumstances than Moody\u2019s expects, Ms. Carlson said.<\/p>\n
\u201cTurkey is the only country to have gotten two upgrades since the onset of the global financial crisis,\u201d she said. \u201cTurkey occupies a very special place in the ratings decisions we have taken in European countries in recent years\u2026. Turkey is one of the good news stories coming out of Europe.\u201d<\/p>\n
-Yeliz Candemir contributed to this article.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" By Emre Peker ISTANBUL\u2013One of the few bright spots in Europe, Turkey has bagged two credit-rating upgrades in as many years even as back-to-back debt crises have roiled world markets. Upgraded by Fitch Ratings to investment grade for the first time in two decades earlier this month, Turkish assets have surged to record highs amid […]<\/p>\n","protected":false},"author":83,"featured_media":68792,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[846],"tags":[3114,6515],"class_list":["post-59497","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","tag-fitch","tag-moodys"],"_links":{"self":[{"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/posts\/59497","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/users\/83"}],"replies":[{"embeddable":true,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/comments?post=59497"}],"version-history":[{"count":0,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/posts\/59497\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/media\/68792"}],"wp:attachment":[{"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/media?parent=59497"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/categories?post=59497"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/tags?post=59497"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}