Moody’s downgrades Turkey’s debt rating as risks pile up

(Updated with Turkish president's remarks in third, fourth paragraphs)

Credit rating agency Moody’s downgraded Turkey’s debt rating to ‘B2’, citing higher external vulnerabilities and eroding fiscal buffers in the country, Bloomberg reported on Friday.

“Turkey’s external vulnerabilities are increasingly likely to crystallise in a balance of payments crisis,” Bloomberg cited Moody’s analysts Sarah Carlson and Yves Lemay as saying. “As the risks to Turkey’s credit profile increase, the country’s institutions appear to be unwilling or unable to effectively address these challenges.”

Turkish President Recep Tayyip Erdoğan on Saturday addressed Moody's move by attacking S&P, another rating agency  that has not issued a recent rating for Turkey.

"S&P take a look at yourself. You cannot bring the Turkish economy to its knees by some sanction. You tried this before, but were unsuccessful," the Turkish president said. "You will fail again this time. We are not a member of yours, either. Do you want money? Not a single dime for you.''

Fitch ratings agency downgraded the outlook on Turkey's Long-Term Issuer Default Ratings (IDRs) to negative from stable in the last week of August. And on Wednesday, in a report, it said Turkish banks have more bad debt than headline figures suggest, meaning their financials could deteriorate at a faster pace than revealed by regulators.

Turkey has suffered from an historically high current account deficit, which requires financing through income such as tourism revenue and inward investment. But both have slumped this year, while government efforts to stimulate economic growth with cheap loans from state-run banks and tax amnesties have spurred demand for imports.

Concerns among investors about the widening current account deficit and Turkey's ability to finance it have led to losses for the lira this year of about 20 percent. The currency fell to a record low of 7.49 per dollar this week. It traded down 0.3 percent at 7.47 per dollar on Friday.

Gross foreign exchange reserves, excluding gold, have fallen more than 40 percent this year to $44.9 billion as of Sept. 4, putting pressure on Turkey’s ability to sustain its balance of payments, the analysts said.

Moody’s also warned of rising geopolitical risks as factor for the new rating.

The credit rating to ‘B2’ from ‘B1’ puts Turkey on par with Egypt, Jamaica and Rwanda, Bloomberg said.

“That's below the credit rating the ruling party took over in 2003. Also, it's historically the lowest level [for Turkey],” economist Uğur Gürses said on Twitter, referring to the governing Justice and Development Party (AKP).

“Reminder for those who do not know: Credit rating agencies such as Moody's are writing these assessments to the institutions, funds, investors who lend to our country. Saying, "I don't care," doesn’t work,” he said.