Moody’s praises Turkey’s economic growth

Ratings agency Moody’s Investors Service has heaped praise on Turkey’s economic growth and “relatively strong” public finances.

Writing in an annual report, Kristin Lindow, senior vice president and the report's co-author, said that challenges to Turkey’s credit rating included vulnerability to external shocks and political risk.

Although Turkey's public finances have deteriorated marginally over the past year due to fiscal stimulus and the weaker lira, the country's resilient economic growth and manageable government debt metrics continue to provide key credit anchors.

Turkey’s government is seeking to stimulate economic expansion amid double-digit inflation and without raising interest rates. The policy, while producing growth exceeding 5 percent in the second quarter, has put pressure on the lira and companies’ ability to repay external debt.

The country's public debt-to-GDP ratio is expected to remain below 30 percent next year, Moody’s said. High nominal economic growth, led by rapid inflation, “will largely offset heavier borrowing to finance wider budget deficits,” it said.

“Turkey's sovereign rating could be downgraded if the probability of a balance-of-payments crisis were to rise. Such an event would likely be associated with some combination of a rapidly weakening exchange rate and a sharp reduction in foreign exchange reserves driven by shortfalls in funding the country's wide external deficit…Sustained lower growth and a related worsening in the government's fiscal strength could also lead to a downgrade, as could a further erosion of institutional strength.