Think tank warned against further downgrade of Turkey’s credit ratings

The analysis of credit rating agencies play a crucial role on the level of foreign direct investment and those agencies are expected to further downgrade Turkey’s credit rating due to uncertainties about macroeconomic policies, the Economic Policy Research Foundation of Turkey (TEPAV) said on Tuesday. 

In it’s recent monthly foreign direct investment report, the think tank stated that in Turkey the decreasing trend of the Outward Direct Investment (ODI) /Foreign Direct Investment (FDI) ratio observed between 2002 and 2007 has reversed since 2008. The average ODI/FDI ratio, which was 15.7 percent between 2002-2007, has increased to 25.1 between 2008-2018, and 30.7 percent between 2012-2018. 

According to TEPAV, the rise in the ODI/FDI ratio indicates that Turkey has become less attractive for foreign investors, while domestic investors have also been pursuing opportunities abroad. TEPAV added that fluctuations in Turkey’s growth rate might have been the reason behind foreign and domestic investors' reluctance to invest in Turkey.

The think tank also said that, in addition to various factors affecting foreign direct investments, the analysis of the credit rating agencies also play a crucial role in foreign investors’ decisions on whether or not to invest in a country. 

“The decision of Fitch to place 25 Turkish banks on watch negative in early June and Moody’s announcement that it had placed Turkey’s BA2 credit rating on review due to uncertainties regarding macroeconomic policies should be carefully considered,” TEPAV said.

According to TEPAV, those agencies may further downgrade Turkey’s credit ratings in the future, if those uncertainties remain and those decisions will negatively affect Turkey’s attractiveness for foreign investors.