Gov’t downplays rating cuts for Turkey’s economy

ISTANBUL

Positive or negative decisions by ratings agencies regarding the economy should not be taken too seriously, Turkish Deputy Prime Minister Numan Kurtulmuş has said, calling for a smooth process following downgrades both by Fitch and Standard & Poor’s on the Turkish economy. 

Fitch downgraded Turkey’s sovereign debt to “junk” late on Jan. 27, snuffing out its last remaining investment grade and underscoring deepening concern about politics and monetary policy in what was once a star emerging market. The ratings cut, although widely expected by the markets, came hours after rival agency S&P surprised investors by lowering its outlook for Turkey from “stable” to “negative,” citing concerns over the plunging Turkish Lira and the rising inflation rate. 

During a televised interview on Jan. 29, Kurtulmuş said the process should occur in a smooth way. 

“Any upgrade in our ratings does not mean ‘everything is great in the Turkish economy.’ This is also the case for the downgrades, as the rating or outlook cuts should not be seen as ‘we are dead or something like that,’” he told CNN Türk. 

Kurtulmuş said there was no great problem with the country’s macroeconomic indicators. 

“The point is to boost our production capacity… In a bid to reach this target, we have been taking some key measures, including a new incentive program to create attraction centers, which was recently announced by Prime Minister Binali Yıldırım,” he said, adding that what the government should do was run the economy so as not to shake the macroeconomic balances and the financial system. 

According to Kurtulmuş, rating agencies sometimes move according to political motives rather than economic ones. 

“I believe that the recent decisions by such agencies are part of a smear campaign against Turkey that is aimed at driving it into a corner,” he added. 

Fitch lowered Turkey’s rating to BB+ from BBB-, the latter being its lowest investment-grade rating. Fitch revised Turkey’s ceiling to “BBB-” from “BBB” but maintained the country’s stable outlook.

Fitch was the latest agency to cut Turkey’s sovereign borrower rating.

“While the political environment may stabilize, significant security challenges are set to remain. A constitutional reform process is progressing, which, if approved in a referendum likely to be held in March or April, would entrench a system in which checks and balances have been eroded, in Fitch’s opinion. The purge of the public sector of the supporters of the group that the government considers responsible for the coup attempt in July has continued and a state of emergency remains in place. The scope of the purge, which has extended to the media and other groups, has unnerved some participants in the economy. High-profile terrorist attacks have continued, damaging consumer confidence and the tourism sector,” reads the Fitch statement.

Domestic demand is expected to remain weak in the near term due to political and security conditions, the agency said, and it expects economic growth to average 2.3 percent between 2016 and 2018.

The agency warned investment would not recover “unless structural reform is pursued more aggressively than in recent years.” 

Last year, S&P reduced Turkey’s rating further into junk territory. Moody’s later followed suit and cut its own rating to junk, citing worries about the rule of law after the failed coup, as well as a slowing economy.