Turkey is poised to receive another credit rating upgrade from S&P Global in November, as indicated by a senior analyst at the agency. This improvement is attributed to the strong increase in foreign exchange reserves and a significant reduction in the current account deficit.
Over the past year, Turkey has implemented strict monetary and fiscal policies, resulting in the rebuilding of foreign exchange reserves, reduced imports, and controlled credit growth to tackle inflation and overheated demand.
Since June last year, Turkey has been the only country to receive upgrades from Fitch Ratings, Moody’s, and S&P Global. Frank Gill, senior director at S&P Global Ratings, noted the positive changes in external indicators, particularly the rise in net foreign exchange reserves, following this policy shift.
S&P upgraded Turkey’s rating to “B+” in May, citing improved coordination among monetary, fiscal, and income policy, with a positive outlook. The agency is set to announce its next assessment in early November, considering indicators such as net reserves and the current account deficit trend.
Gill emphasized the substantial improvements in certain credit metrics, especially external indicators, predicting a slight increase in the current account deficit for 2024. However, he highlighted the need to review multiple indicators, such as public finances direction and policy consistency in the coming years.
Narrowing current account deficit
Gill mentioned the rapid reduction in Turkey’s current account deficit, attributed to lower energy costs and reduced net gold imports. The positive trend in these areas contributes significantly to the potential credit rating upgrade for Turkey.
Despite the positive outlook, Gill acknowledged the need to assess various factors, including potential risks like “austerity fatigue.” Nevertheless, he expressed optimism that Turkey’s net reserves exceeding $100 billion and the narrowing current account deficit are positive indicators for a possible upgrade.
Earlier this month, Fitch upgraded Turkey’s foreign-currency Issuer Default Rating, while Moody’s also raised Turkey’s ratings, praising improvements in governance and monetary policy. S&P Global Ratings will closely monitor the interest rate policies of the Central Bank of the Republic of Turkey to evaluate the possibility of rate cuts.
Gradual disinflation process
Gill highlighted the cautious approach required for monetary rate cuts to combat elevated inflation levels. S&P Global Ratings forecasts a gradual decline in inflation over the coming years, emphasizing the importance of maintaining the exchange rate stability to facilitate disinflation.
While acknowledging the resilience of Turkey’s economy and private sector, Gill predicts economic growth to slow down in the near future without entering a recession. The government’s fiscal targets and tightening measures are expected to influence economic growth in the coming years.
Source
Emil Kovács graduated from the Journalism program at Eötvös Loránd University in Hungary. During his journalism studies, he focused on data journalism, investigative reporting, and multimedia storytelling. He gained experience by writing for the university’s student newspaper, where he gained attention for his articles on social issues. After graduation, Emil began working as a reporter at a European news agency, where he conducts in-depth analyses of international news and current events.
