S&P rate cut raises criticism

The international rating agency downgraded Turkey’s credit rating from “BB+” to “BB” on July 20 with a “negative” outlook following a failed military coup on July 15.

“Turkey will need to cope with it [the downgrade] and counter by showing the resilience of the government and economy in the coming months,” Cyril Widdershoven, a partner of consultancy firm VEROCY in the Netherlands, told Anadolu Agency.        

“If the economic resilience of Turkey is strong enough, an upgrade could be expected also soon, bringing additional focus and emphasis on growth potential,” he added.        

Turkey’s annual growth was projected to be 3.4 percent in 2016, compared to the 4 percent seen in 2015, according to S&P, which affirmed Turkey’s rating at “BB+” and revised up its outlook to “stable” from “negative” on May 6.        

At the time the rating agency had emphasized the upward revision with a statement that said: “The Turkish economy was resilient to the challenges posed by the busy electoral calendar in 2015, the end of the peace process with Kurdish militants, heightened regional instability and weak investor sentiment toward emerging markets.” 

“The stable outlook reflects the balance between the resilience of the Turkish economy and modest fiscal deficits against lingering regional and domestic risks and still-high external financing needs,” the statement added.        

Widdershoven emphasized that the Turkish government should ensure markets and investors will not be adversely affected by uncertainties stemming from the attempted coup.  
     
“Investors’ confidence at present is dented, which is normal in the light of current developments. However, taking the political-military issues out of the constellation, overall economic issues could be minor, so confidence overall can be restored,” he said.        

Ed Hirs, an economist at the University of Houston, Texas, also stressed the government’s role and the resilience of the economy to weather the storm.        

Referring to S &P’s downgrade, he said: “This is not the fault of the government but of the coup attempt.”        
Hirs stated that rating agencies are looking for the Turkish government to do its best to reassure investors that business would continue as usual, despite all the turmoil.      
 
Meanwhile, the International Monetary Fund (IMF) had revised Turkey’s 2016 growth forecast to 3.8 percent, from 3.2 percent, according to its World Economic Outlook report published in April. The IMF expects Turkey to grow by 3.4 percent in 2017.