S&P cuts Turkey further into junk territory
Standard & Poor’s cut Turkey’s debt rating further into junk territory citing concerns about high inflation, the lira and its widening current account deficit.
S&P said there was a risk of a hard landing for the country’s economy, which was overheating and fueled by credit. The agency lowered Turkey’s foreign currency sovereign credit rating to BB- from BB, two steps below investment grade, with a stable outlook.
The decision reflects “the rising imbalances in Turkey’s economy, most notably in its widening debt-financed current account deficit and high inflation,” S&P said. “The ongoing weakness of the Turkish lira is not only fueling inflation, but also amplifying risks related to Turkey’s high external debt.”
Turkey’s lira has sunk to record lows against the dollar after President Recep Tayyip Erdoğan’s government enacted measures to stimulate the nation’s economy, including tax breaks and loan guarantees. Erdoğan has also claimed that higher interest rates fuel inflation, restricting the central bank’s room for maneuver as it seeks to curb annual price rises that have accelerated into double figures.
There will be no return to prudent economic policies after a snap election called for June 24, S&P said. Electoral considerations will continue to play a role up to local elections next March, it said.
“The state of emergency will remain in place at least until the elections, de facto allowing the Turkish President to rule by decree,” S&P said. “The prolonged state of emergency and move toward the executive presidency underpins our concerns over centralised decision-making processes and an erosion of checks and balances.”
The next scheduled rating publication will occur in August, S&P said.