Turkey’s finances could worsen rapidly, S&P says

Turkey’s finances could deteriorate quickly should the authorities fail to ease pressure on the lira and borrowing costs, ratings agency Standard & Poor’s said.

S&P could potentially downgrade Turkey further into junk territory if there was no let-up in market pressure, sovereign analyst Frank Gill told Reuters in an interview.

“The concern is that the balance of payments situation worsens and that really starts to hit growth and the fiscals pretty quickly, and the banks,” he said.

Turkey’s lira slumped to a fresh record low of 4.66 to the dollar on Tuesday on concern that the central bank is unwilling or politically unable to raise interest rates to stem the currency’s decline and rein in double-digit inflation and a widening current account deficit. S&P’s statement followed similar warnings from Fitch earlier in the day.

Higher oil prices are no longer being passed on to consumers at petrol pumps, thanks to a government decree, causing a decline in tax income ahead of elections on June 24. Meanwhile, Turkish corporates have taken out more than $220 billion in dollar loans which are becoming more expensive to repay as the lira slides.

“A lot will ultimately depend on what the central bank does, if anything,” Gill said.

Still, Turkey has “substantial buffers and we think there is absolutely a way out of this,” Gill said, calling on the Turkish authorities to take decisive action.