Turkey’s investment rating was recently amended by Fitch Ratings and upgraded to ‘BBB-‘ – a score which means Turkey is now defined as an investable country. In the last few months another international credit institution, Standard & Poors (S&P), was heavily criticized by the Turkish prime minister Recep Tayyip Erdogan after downgrading Turkey’s credit score from ‘positive’ to ‘stable’. S&P was accused of determining its credit scores without considering the actual economic conditions of the country and making ideological decisions. Therefore, the reliability of international credit institution scores was questioned in Turkey.
However Fitch’s recent upgrade was welcomed by the deputy prime minister Ali Babacan, who said that the decision was appropriate and overdue, and expressed hope that other ratings agencies would follow its lead. Babacan also stated that: “Turkey’s achievement of this credit rating is expected to mark the start of a new era in the access of our public and private sector institutions to international capital markets.”
However, Turkey will not automatically be included in benchmark investment grade bond indexes because countries need investment grade ratings from two of the big three agencies to be included in benchmark investment grade bond indexes. Moody’s currently rates Turkey one notch below investment grade, while S&P puts it a rung lower.
However, many economists agree with Babacan that the Fitch move was overdue. “Turkey should have long been investment grade status, given its proven willingness to pay in difficult circumstances. The external financing risks to the sovereign have long been overstated,” said Timothy Ash, the head of EM research at Standard Bank Group.
Moody’s, which upgraded Turkey to ‘Ba1’ in June 2012, said last week that a history of political friction between secular and religious elements of Turkish society remains a credit challenge for the country. However, it said it would consider upgrading Turkey if the government made further progress in reducing its current account deficit, increasing foreign exchange reserves or reducing private sector external borrowing.
Ali Ceylan is a partner at Baspinar & Partners Law Firm. He can be contacted at
[email protected]
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