Moody’s downgrades Turkey’s debt rating as risks pile up

Credit rating agency Moody’s downgraded Turkey’s debt rating to ‘B2’, citing higher external vulnerabilities and eroding fiscal buffers in the country, Bloomberg reported on Friday.

“Turkey’s external vulnerabilities are increasingly likely to crystallise in a balance of payments crisis,” Bloomberg cited Moody’s analysts Sarah Carlson and Yves Lemay as saying. “As the risks to Turkey’s credit profile increase, the country’s institutions appear to be unwilling or unable to effectively address these challenges.”

Turkey has suffered from an historically high current account deficit, which requires financing through income such as tourism revenue and inward investment. But both have slumped this year, while government efforts to stimulate economic growth with cheap loans from state-run banks and tax amnesties have spurred demand for imports.

Concerns among investors about the widening current account deficit and Turkey's ability to finance it have led to losses for the lira this year of about 20 percent. The currency fell to a record low of 7.49 per dollar this week. It traded down 0.3 percent at 7.47 per dollar on Friday.

Gross foreign exchange reserves, excluding gold, have fallen more than 40 percent this year to $44.9 billion as of Sept. 4, putting pressure on Turkey’s ability to sustain its balance of payments, the analysts said.

Moody’s also warned of rising geopolitical risks as factor for the new rating.

The credit rating to ‘B2’ from ‘B1’ puts Turkey on par with Egypt, Jamaica and Rwanda, Bloomberg said.

“That's below the credit rating the ruling party took over in 2003. Also, it's historically the lowest level [for Turkey],” economist Uğur Gürses said on Twitter, referring to the governing Justice and Development Party (AKP).

“Reminder for those who do not know: Credit rating agencies such as Moody's are writing these assessments to the institutions, funds, investors who lend to our country. Saying, "I don't care," doesn’t work,” he said.