Scope Upgrades Turkey's Credit Rating
Foreks - Germany-based credit rating agency Scope Ratings has upgraded Turkey's credit rating.
According to a statement from Scope Ratings, Turkey's foreign currency long-term issuer and senior unsecured debt ratings were raised from "B" to "BB-", while local currency long-term issuer and senior unsecured debt ratings were increased from "B+" to "BB-".
Scope revised the credit rating outlook from "positive" to "stable" after the upgrade.
The reasons cited for the upgrade of Turkey's credit ratings include "an effective monetary policy stance, expectations of a tightening fiscal policy, and a moderate economic slowdown supporting a sustainable disinflation process."
Scope stated, "The enhanced record of macroeconomic policymaking, commitment to maintaining the current policy stance, and improvements in coordination between monetary, fiscal, and revenue policies increase the likelihood of continued inflation decline. The slowdown in private consumption and the rebalancing toward investment and net exports are raising expectations for stronger macroeconomic stability."
The statement continued: "Stronger economic and financial management is facilitating the replenishment of international reserves, alleviating pressure on the balance of payments, and reducing financial stability risks. A moderate economic slowdown supports the anticipated narrowing of the current account deficit and gross external financing needs, alongside a steady decline in external debt. Sustainable inflation reduction and improved macroeconomic policymaking are alleviating pressures on banks' balance sheets by supporting foreign capital inflows and lira-denominated assets."
Scope indicated that further adjustments to the minimum wage are likely following the 49% increase in January 2024, but noted that officials appear committed to moderate income policies.
Scope projected that the central government deficit will decrease from 5.1% of GDP in 2024 to 3.5% in 2025. From 2026 onwards, primary balance should support the general government debt/GDP ratio to stabilize at around 25% by 2029, which is considered low compared to rating peers.
The agency forecasts Turkey's growth at 3.0% in 2024 and 2025. It expects the current account deficit to fall to below an average of 2.0% in 2024 and 2025 from 4.0% of GDP in 2023 due to a restrictive policy mix pressuring consumption and investment, as well as lower inflation supporting domestic savings.
The German rating agency noted that improved policymaking, the ongoing fight against inflation, and Turkey's exit from the FATF grey list have supported more positive investor confidence and foreign capital inflows.
Scope has also prepared upside and downside scenarios regarding the credit rating.
Upside scenario: 1- Strengthened inflation outlook due to enhanced credibility, independence, and effectiveness of the central bank. 2- A stronger fiscal outlook increasing confidence in reaching and maintaining primary surpluses. 3- Higher international reserves due to lower gross external financing needs and increased foreign capital inflows.
Downside scenario: 1- A sharp economic slowdown or external shock leading to a decline in inflation. 2- Decreasing international reserves, weakened external resilience, and rising financial stability risks. 3- Intense political pressure domestically, serious deterioration in security conditions, and international relations.