Moody’s highlights Turkey debt risks

Moody’s has followed Standard & Poor’s in highlighting sovereign debt risks in Turkey, as the prospect of rate hikes in the United States and Europe puts the focus on weaker emerging market economies.

While the outlook for global sovereign debt is more favourable than a year ago, with unusually low inflation in both advanced economies and many emerging markets, political uncertainty and tensions led Moody’s to pick Turkey as one of three major outlying economies in a report published today.

Political and social considerations remain an obstacle to rapid reforms, particularly in countries such as Brazil, South Africa and Turkey … Overall, slow progress on reforms leaves many sovereigns more vulnerable to a deterioration in their credit profiles in the event of a shock.

While the debt outlooks of Turkey, Brazil and South Africa were rated “negative”, Moody’s noted the “benign” state of the global sovereign credit environment, reflected in the fact that almost three-quarters of its sovereigns held a “stable” outlook.

S&P said this week that Turkey, Argentina, Pakistan, Egypt, and Qatar now comprise a new “Fragile Five” of emerging market economies that are set to suffer the most from higher interest rates. In 2015, Brazil, India, Indonesia, South Africa, and Turkey were the Fragile Five.

Turkey was the only country that was among the most vulnerable in all variables chosen, S&P noted. These categories included the current account balance as a percentage of growth and the percentage of debt denominated in foreign currency as a ratio of the total debt the countries possessed.

Inflation in Turkey surged to 11.9 percent in October, further disengaging the country from a large group of low-inflation emerging markets such as Russia, Poland and China. President Recep Tayyip Erdoğan should focus on bringing down inflation, rather than boosting economic growth, as price rises presented the biggest economic risk to his re-election in a vote planned for 2019, economist Güldem Atabay Şanlı said in an analysis for Ahval published today.

Turkey inflation