Moody’s has downgraded Turkey’s issuer and bond ratings to junk and concluded the review initiated on 18 July 2016.
Because of the increase in the risks related to the country’s sizeable external funding requirements and the weakening in previously supportive credit fundamentals, particularly growth and institutional strength, Moody’s Investors Service has today downgraded the Government of Turkey’s long-term issuer and senior unsecured bond ratings to junk (from Baa3 to Ba1) and assigned a stable outlook. This concludes the review for downgrade that was initiated on 18 July.
Moody’s notes that Turkey continues to operate in a fragile financial and geopolitical environment and that its external vulnerability has risen, both over the past two years and more recently as a result of unpredictable political developments and volatile investor perception.
This has credit implications for Turkey given its dependence on foreign capital. The risk of a sudden, disruptive reversal in foreign capital flows, a more rapid fall in reserves and, in a worst-case scenario, a balance of payments crisis has increased.
The stable outlook balances downside risks arising from the erosion in Turkey’s economic resilience and increasing balance of payments pressures against credit-positive considerations arising from its large and flexible economy which continues to register positive growth and the government’s strong fiscal track record.
Concurrently, Moody’s has downgraded to Ba1 from Baa3 the senior unsecured bond rating of Hazine Mustesarligi Varlik Kiralama A.S., a special purpose vehicle wholly owned by the Republic of Turkey; and assigned a stable outlook.
In conjunction with rating actions, Moody’s has also lowered Turkey’s long-term foreign-currency bond ceiling to Baa2 from Baa1, and its long-term foreign-currency deposit ceiling to Ba2 from Baa3. Turkey’s short-term foreign-currency deposit ceiling has been lowered to NP from P-3, and the country’s short-term foreign-currency bond ceiling to P-3 from P-2. Furthermore, Turkey’s local currency bond and deposit ceilings have been lowered to Baa1 from A3.