Election result raises political uncertainty and will further delay economic policy: Moody’s

ISTANBUL

Credit rating agency Moody’s has said the result of the Turkish general election is credit negative for Turkey, as it raises political uncertainty in the short term and will further delay the implementation of economic policies. The agency has addressed the urgent need for the incoming government to retain investor confidence and implement key reforms. 

“The election result is credit negative for Turkey because in the short term it will likely result in greater political uncertainty arising from the probable creation of a minority or coalition government, that we would expect to be unstable and prone to early elections. Additionally, the outcome will likely further delay the implementation of economic policies to reduce external vulnerabilities, improve the investment climate and reactivate economic growth,” Moody’s said in a written statement on June 9. 

According to Moody’s, by allowing the clear diversity within the electorate an effective voice in Turkey’s parliament, the outcome supports the country’s institutional strength and, other things being equal, will support investor confidence in Turkish institutions. 

“In the more immediate future, the election result suggests that one-party majority rule, that has been the norm in Turkey for the past 13 years, will be replaced with a more uncertain minority government or a multi-party coalition, which will be inherently less stable,” it added. 

Moody’s addressed the urgent need for the implementation of structural reforms in the country. 

“Important economic policy decisions such as structural reform measures aimed at increasing domestic savings, improving labor market flexibility and reducing energy dependence will likely stall because of the political instability resulting from the election results. In particular, political uncertainty will likely affect investor confidence, a critical factor for Turkey’s economy, which depends on external capital to fund its external imbalances,” it said. 

“The capacity of the incoming government to retain investor confidence and avoid damaging outflows of international capital, and to continue to implement reforms which enhance growth and reduce Turkey’s external vulnerability, will be an important influence on the future trajectory of the rating,” Moody’s said.