Turkey making progress, but risks

ISTANBUL - Reuters

AA photo

Ratings agency Moody’s said yesterday Turkey was making progress to reduce its debt and narrow its current account deficit, but said external imbalances remained a significant risk.

The agency kept Turkey one notch below investment grade in an annual review late on Nov. 20, saying its balance of payments left it vulnerable to shocks, disappointing investors who had hoped it might get its second investment grade rating of the month.

Fellow ratings agency Fitch upgraded Ankara earlier this month, resulting in Turkey regaining its investment grade rating for the first time in 18 years. It was seen as an endorsement of an economic transformation achieved in the past decade under Prime Minister Recep Tayyip Erdogan.

But Moody’s was more circumspect and said it would take time for measures that Turkey had taken to address its current account deficit to filter through, forecasting the deficit would fall to 7.4 percent of output next year from 7.8 percent in 2012.

“There are very significant structural drivers behind the current account deficit which will be slow to change,” Sarah Carlson, Moody’s senior credit officer, said on a conference call. “The government has taken some decisions which will certainly address some of the structural elements ... but these are risks that are fairly longstanding.”

Moody’s failure to follow in the footsteps of fellow ratings agency Fitch, which raised Turkey to investment grade two weeks ago, will be a disappointment for the government. Fitch had highlighted the country’s moderate and declining levels of public debt.

Turkey needs at least one of the two other major ratings agencies to follow Fitch’s lead before it can join benchmark investment grade bond indexes, a status that many funds require before investing in a country.

Moody’s said it expected the Turkish economy to grow between 3.5-4.5 percent in 2013, Moody’s senior analyst Martin Kohlhase said.