Şimşek expects more rating upgrades for Turkish economy

LONDON

Fitch has upgraded Türkiye’s rating by one notch, citing tighter monetary policy are helping reduce macroeconomic vulnerabilities.

Fitch moved the rating to "B+" from "B," while revising the country’s outlook to positive from stable.

The rating upgrade, which is the first in 12 years, was the concrete result of the government’s economic program, Finance Minister Mehmet Şimşek said, adding that the positive outlook indicates that the rating increase will continue in the coming period.

Fitch did not remain indifferent to the success of the program, Şimşek wrote on X.

“Türkiye's rule-based and predictable policies that comply with international norms were effective in the upgrade. Such positive developments will increasingly continue as macro-financial stability becomes stronger,” he said.

In the second half of the year, macro-financial stability will be further strengthened and Türkiye’s credit rating will increase, thanks to disinflation, narrowing current account deficit and budget discipline, the minister added.

The upgrade reflects increased confidence in the durability and effectiveness of policies implemented since the pivot in June 2023, including greater-than-expected frontloading of monetary policy tightening, in reducing macroeconomic and external vulnerabilities, Fitch said in a statement.

Inflation expectations have eased, and external liquidity risks have moderated, reflected by more favorable external financing conditions, higher reserves, lower FX-protected deposits and a narrowing current account deficit, it added.

The Positive Outlook reflects Fitch's expectation that Türkiye's overall macroeconomic policy stance should be consistent with a significant decline in inflation, as well as a continued reduction in external vulnerabilities in terms of lower current account deficits and stronger liquidity buffers.

The rating company expects that lower current account deficits, sustained improvement in external financing conditions and some portfolio inflows will lift international reserves to $148 billion at end-2024 and $159 billion by end-2025.

“Our base case assumes that the outcome of the local elections in March will not lead to a policy reversal,” Fitch said.

Evidence of sustained progress in Türkiye's disinflation process and greater confidence that the current policy normalization and rebalancing process will lead to a sustained decline in inflation could lead to positive rating action or upgrade, it also said.