Turkey still behind other investable countries: Fitch

ISTANBUL - Anatolia News Agency

Turkey’s current deficit and inflation is worse than other countries having the same grade, but Fitch knew this while upgrading it, Fitch Turkey Director Gülcan Üstay [inset] has said. Hürriyet photo

Despite promises of growth in the Turkish economy amid worldwide recession trends, it still lags behind countries with the same investment grade, the Turkey director of Fitch Ratings, the only ratings institution to have upgraded Turkey to the level of investable countries, has said.

“Turkey has distinctions when you compare it with the other countries with BBB- [investable] grade but we upgraded Turkey’s grade aware of these aspects,” Gülcan Üstay, Turkey branch director of Fitch Ratings, told the Anatolia News Agency finance editorial desk on March 22.

The chances of Turkey getting an upgrade is lower than its counterparts as it has worse  macroeconomic figures compared to the other countries, she said, adding that the possibility of Turkey getting an upgrade in three years is around 10 percent, though this does not mean there cannot be an evaluation or upgrade sooner or later.

The most salient feature of the Turkish economy is the current deficit and even more importantly the tools to fund this deficit, she said, echoing the majority of analyses on the Turkish economy.

The chronic current account deficit has been the biggest problem of the economy, attracting the main focus of the government as well. The Turkish government has been overexerting itself to cure this distress in boosting its exports by producing domestic goods and eliminating its import dependency by seeking alternative resources. Üstay’s remarks have approached this problem in the financing aspect, as she said funding the deficit via short-term portfolio investments increase Turkey’s volatility.

“Turkey is obliged to finance its deficit from abroad since its domestic savings are still low. This makes Turkey sensitive to foreign liquidity crises and makes the capacity of the current deficit’s financing an issue to be followed by everybody,” she said.

The analyst also touched upon another sensitivity of the Turkish economy, inflation, saying Fitch does not see Turkey realizing its goal of 5 percent inflation this year, “but it would be good, it could be pulled down to 5 percent,” she noted.

She said it is a hard challenge to control inflation at such a time when domestic demand is also rising and praised the Central Bank’s attempts to reduce the inflation.

Banking Turkey’s power

Üstay’s rating explanation highlights not only negative but positive sides of Turkey.

The Turkish banking sector posts a positive big-picture outlook and the recent fine charged to the 12 largest banks by Turkey’s competition watchdog will not damage the positive movement of Turkey, she said.

“We always tell foreign investors that Turkey has a great banking scheme and it is well-regulated, learning lessons from former mistakes.”

From capital adequacy ratios to profitability and from risk structures to reserve allocation, Turkish banks are positively distinctive among other banks in global markets, she said. She suggested that banking might enhance its position as a sector attracting major foreign investments further in the forthcoming period.

Currently, most of the foreign investments are condensed in energy and transportation fields and the Fitch director foresees it is likely to stay this way for a while.

Speaking at another interview with daily Dünya published a day before, Üstay had said the recent cancelation of a major privatization tender of toll roads and bridges by the government might have a negative effect on foreigners’ confidence to invest in Turkey and that the government should rectify this bad reputation. Turkey has been the “most popular country” on Fitch’s website, proving foreign interest, she said.