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S & P upgrades Turkey outlook to BB+, despite political instability

Paris / AFP

Standard and Poor’s upgraded its outlook for Turkey’s credit rating, judging the prospects for the nation’s economy to be stable despite political instability that may dampen growth and reform plans.
The end to the negative outlook on the BB+ foreign currency rating, one rung below an investment grade, came a day after President RecepTayyipErdogan’s plans to consolidate power advanced with the resignation of AhmetDavutoglu as PM.
The rating agency said it believes the Turkish government will post modest fiscal deficits, against lingering geopolitical risks and still-high external financing needs.
“The stable outlook reflects our expectation that Turkey’s economic growth prospects will remain resilient to external shocks and domestic political risks,” Standard and Poor’s said in a statement.
It noted the Turkish economy has weathered several challenges including increased domestic violence after the collapse of the peace process with Kurdish militants, two general elections and a sharp drop in the value of the lira.
Standard and Poor’s said it expects Turkey’s economy to grow by 3.4 percent this year, down from 4.0 percent in 2015.
It raised the rating outlook despite acknowledging it expects “heightened political uncertainty in 2015 to spill over into 2016, and this could also dampen economic growth prospects this year.”
S&P also noted that Turkey’s current account deficit narrowed to 4.5 percent of GDP in 2015, from 5.5 percent in 2014, mostly due to the low price of energy imports.
The ratings agency said it also expects that “the implementation of the ambitious medium-term economic program for 2016-2018 is likely to stall in 2016, in our view, due to the president’s focus being directed more toward bringing about constitutional change with the end goal of achieving an executive presidency.”
Among the risks to the Turkish economy it identified are weak tourism, an increase in oil prices, and a rise in the deficit.

 

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