Turkey most exposed to capital inflow disruption, says S&P

PARIS - Agence France-Presse

Turkey is the most vulnerable of 19 European countries outside of the eurozone to external refinancing risks.

Turkey, growing fast but building up debt, is the most exposed of 19 European countries outside the eurozone to disruptions to capital inflows, Standard and Poor’s said Feb. 29.

S&P, one of the top three ratings agencies, said it had compiled a new index to measure the impact on emerging European economies of disruptions to capital inflows as the regional economy comes under even more pressure.

These countries, mostly in the east of the continent, have experienced a roller-coaster ride in recent years, with boom turning to bust for some, especially in the aftermath of the 2008-09 global financial crisis.

Since then, however, some have stabilized their economies to become important players in Europe, both as markets and production centers.

S&P said its new index includes 19 non-eurozone countries and is aimed at measuring their sensitivity to external shocks that could, among other things, increase their debt levels.

The Emerging Europe Sensitivity Index (EESI) currently suggests that “progress has been made at least in reining in previously high current account deficits; however, there are notable exceptions such as Turkey and Ukraine.

“The risk is that, despite the rebalancing achieved so far, the renewed deleveraging of the eurozone financial sector could trigger destabilizing capital outflows from many emerging European economies, with negative knock-on effects on growth and public finance,” S&P said in a statement.

It said that Turkey, which has grown very fast in recent years, is viewed “as being the most vulnerable to sudden financial account outflows and external refinancing risks.”

S&P said that since 2009, many “countries have made good progress in rebalancing and deleveraging,” citing Albania, Ukraine, Serbia, Romania, Macedonia, Lithuania, Latvia and Hungary.