Turkey, the only country to receive a rating upgrade from three major international credit rating agencies this year, is expected to receive another rating increase from S&P Global Ratings in November.
S&P Global Ratings Senior Director Frank Gill, in a statement to AA correspondent regarding the developments in the Turkish economy and the assessment on November 1, said that after the policy change in the Turkish economy, some credit rating metrics, especially external indicators, have improved and one of the most important among them is the increase in net foreign exchange reserves.
Stating that the current account deficit has also narrowed very quickly and that they expect it to hover just above 1 percent of gross domestic product (GDP) for this year, Gill said that the continued decline in Brent oil prices contributed to the narrowing in the current account deficit.
S&P Senior Director Frank Gill said, “With a positive outlook, a rating upgrade (for Turkey in November) is possible. The improvement in net reserves and the rapid narrowing of the current account deficit are very important. We can say that the decision to raise the rating depends largely on these two factors. Also, the decline in Turkey’s energy and gold imports is a very important development. Meanwhile, we will also be looking at the interest rate policy of the Central Bank of the Republic of Turkey (CBRT) for the rating decision.”
Following the change in Turkey’s macroeconomic policies, Fitch Ratings, Moody’s and S&P Global Ratings upgraded the country’s long-term foreign currency credit rating. Fitch raised Turkey’s rating to “BB-” in its latest assessment, Moody’s up two notches from “B3” to “B1”, and S&P Global Ratings from “B” to “B+”.
Emphasizing that they take into account many indicators, especially net reserve levels and the positive trend in the current account deficit, Gill continued his speech as follows:
“One of the key questions for us is the direction of public finances in Turkey. To bring inflation down to single digits, the authorities need to reduce consumer demand, which means lower growth, which can often lead to weaker fiscal outcomes. As I mentioned, there are many indicators to review for the rating decision. Given that the economic policy shift in Turkey is not a one-year correction but a multi-year process to disinflate the economy, we have to ask ourselves whether the Turkish government will stick to the policy over the next few years. Our baseline forecast is that they will. They have been doing so for more than a year, but there are risks of ‘austerity fatigue’ in our main scenario.
Gill stated that inflation forecasts for the end of this year are 43 percent, 23 percent for the end of 2025 and 10 percent for the end of 2026. By the end of 2027, inflation is projected to fall below 10 percent.
