Political risk embedded in Turkey's current note: Moody’s

ISTANBUL

Political risk is not only problem to be solved for rating upgrade for Turkey, Mooody’s has told Reuters.

Moody’s, which raised Turkey’s sovereign credit rating to investment grade last May, said yesterday domestic political risk was already embedded in the country’s current rating.

“We consider that domestic political risk represents a material risk in Turkey ... which is embedded in the current rating of Baa3/stable outlook,” it said in comments emailed to Reuters.

The rating agency said the balance of the payment factor will limit any upward movement in Turkey’s credit grade as long as the external uncertainties remain at a certain level.

The statement also described the reversal of improvement in public finances or sudden and permanent stops of foreign capital flows as risks threatening Turkey’s investment outlook. 

“A decrease in political risk in Turkey would not be enough to push the country’s credit rating upward if no other improvements are attained,” the institution told Reuters.

A wide-ranging graft investigation, cast by Prime Minister Tayyip Erdoğan as a plot to undermine his government, is shaking investor confidence in Turkey when the Turkish Lira is languishing around record lows, inflation rising and growth slowing.

Fitch warning

Another rating agency Fitch issued a statement on the impact of political tension on the economic outlook of the country.

Fitch said while the crisis had no immediate impact on its ‘BBB-’ sovereign rating for Turkey, prolonged uncertainty could prove more damaging.

“If the corruption scandal drags on, it could weaken the government and undermine its ability to take timely policy measures that would maintain economic stability,” it said.

It noted tensions between the government and judiciary had strained institutions in Turkey.