Political unrest stirs volatility of Turkish economy: Moody’s

LONDON

Riot police use water cannons to disperse demonstrators during an anti-government protest in the Aegean port city of Izmir March 16. AFP photo

In a report published on March 24, the international ratings agency Moody’s said the Turkish economy had been left fragile by the political tumult shaking the country and the uncertainty in the financial markets.

“Political turbulence and market volatility heightens Turkey’s external vulnerability,” Moody’s stated in a report summarizing crucial external vulnerabilities of a number of emerging markets in Europe, Africa and the Middle East.

Last week, Moody’s announced that it had placed 10 Turkish banks on review for a possible downgrade in their ratings, citing stiff conditions for banks and the tense political environment in the country.

 “Recent financial market volatility and pressure on emerging market currencies have underscored the potential vulnerability emerging market sovereigns face during an extended period of uncertainty,” read the report.

 “[The countries] with external imbalances, a reliance on external funding, and weak policy frameworks will remain vulnerable to sentiment changes, capital flow adjustments, or disorderly market reactions,” it added.

For the Turkish case, however, Moody’s said the country was relatively shielded against external imbalances, claiming the total amount of foreign-currency debt is relatively low at 13 percent of GDP.
The agency also argues that ongoing efforts to lengthen its domestic and external debt profile to average maturities have managed to reduce the government debt’s sensitivity to possible changes in interest rates.

In contrast to Moody’s relatively optimistic view of Turkey’s debt position, a day before, its fellow Fitch Rating Agency had said Turkish companies’ foreign-currency debts make them the most exposed among EMEA emerging markets to a scenario of slowing growth, rising interest rates and a persistently weak local currency.