Credit rating agency Moody’s said on Tuesday that a review on a possible downgrade of Turkey’s sovereign credit rating will depend on what policies the country’s government pursues following President Recep Tayyip Erdogan’s election victory this week.
“Turkey’s rating review announced earlier in June will focus on the incoming government’s capacity and intention to implement policies that would promote sustainable growth and protect the government’s fiscal strength,” Moody’s said in a statement.
“Such policies will be key to restoring confidence in the economy and provide greater assurance of Turkey’s ability to obtain the requisite funding for its large current account deficit and to meet its external repayment requirements,” it added.
Early this month, Moody's took rating actions on 17 Turkish banks.
The long-term ratings of 14 banks were downgraded whilst the rating of three other banks was affirmed. The outlook on 12 banks was changed to stable from negative whilst the outlook on five other banks remained negative.
The agency explained that the rating actions were driven by the weakened capacity of the Turkish government to provide support to the country's banks, reflected in the downgrade of Turkey's government debt rating to Ba2 with stable outlook from Ba1 with negative outlook on March 8, 2018, Moody's lowering of its Macro Profile for Turkey to Weak+ from Moderate- and its view that the operating environment in Turkey will become more challenging in 2018.
It said it will seek to understand the policy-formulation process, given that Erdogan will have significant authority over the legislative and judicial branches of government and could potentially also exert greater influence over the legally independent central bank.
The increase in the country's external vulnerability resulting from that confidence shock can be seen in a number of indicators. Most visibly, the Turkish lira has depreciated by roughly 20 percent in the past three months, Moody’s added.
