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International credit rating agency Moody’s announced that it has downgraded Turkey’s credit rating from B2 to B3, and changed its rating outlook from negative to stable.
Moody’s cited the increasing pressures on Turkey’s balance of payments and the risk of further decline in foreign exchange reserves as reasons for the downgrade of its credit rating.
The organization noted that they expect the current account deficit to exceed expectations by a large margin.
The organization estimates that Turkey’s current account deficit will be close to 6 percent of gross domestic product this year, three times higher than expected before the Russian invasion of Ukraine.
According to Bloomberg HT’s report, analysts Kathrin Muehlbronner and Alejandro Olivo said in a statement that authorities had to resort to increasingly unorthodox measures to stabilize the currency and replenish its foreign exchange store.
“Increasingly complex regulatory, fiscal and macroprudential measures are unlikely to be effective in restoring macroeconomic stability,” analysts said in a statement.
The last level of investment
According to the news of Dünya newspaper, former IMF economist Aydın Özüdogru stated that the B3 credit rating was given for liabilities that are considered speculative and subject to high credit risk.
According to Ozudogru’s assessments, this rating means that that country is experiencing financial instability or holding insufficient cash reserves.
Level B is defined as the last level at which financial investment can be made for international investors.
Other countries with a B3 grade are as follows:
- Bosnia and Herzegovina
- Kyrgyzstan
- Moldova
- Mongolia
- Nicaragua
- Niger
- Pakistan
- Swaziland
- Tajikistan
Tera Investment’s economist Enver Erkan also evaluated why the institution made this decision in the market rating.
According to Erkan, Moody’s sees the rise in inflation as an important sign of instability.
Expecting a significant weakening in Turkey’s public finances this year, the institution stated that foreign reserves are also in focus due to the increase in energy import prices and the decrease in tourism and export revenues.
Moody’s also stressed that the rating could likely be further downgraded if officials resorted to a banking crisis or more stringent policy measures that increase the risk of payment default by large companies.
Turkey is rated B by Fitch Ratings and B+ by S&P Global Ratings.