Standard & Poor’s (S&P) on Tuesday said strengthening indicators of Türkiye’s economic rebalancing prompted the international credit rating agency to raise the country’s sovereign credit outlook to positive last week.
The surprise revisal of the outlook on the nation’s long-term foreign-currency issuer default rating from stable came outside a strict rating calendar as Türkiye has been shifting to more conventional policymaking since after the May elections. The S&P Global Ratings affirmed the country’s rating at “B.”
Frank Gill, managing director of Sovereign Ratings for Europe, Middle East and Africa (EMEA) at S&P, assessed the impacts of recent measures to enhance economic stability in Türkiye.
“Reflecting increasing evidence that the Turkish economy has indeed rebalanced, we have maintained Türkiye’s B credit rating while raising the credit outlook to positive,” Gill told an online meeting titled “Spotlight on Emerging Markets: Türkiye 2024 Outlook.”
President Recep Tayyip Erdoğan appointed the new economic administration after the May elections has orchestrated a reversal from a yearslong easing policy and aggressively delivered monetary tightening to cool overheated demand and rein in inflation.
Since June, the country’s central bank raised its key policy rate, the one-week repo rate, by 3,150 basis points to curb the inflation, which is running above 61% and is expected to rise through May next year before dipping. The increases included hikes of 500 points in the last three months.
Authorities have also begun to untangle a raft of financial regulations.
Gill offered insights into Türkiye’s third-quarter growth data, which last week showed the economy expanded by a more-than-expected 5.9% in the July-September period, driven by household spending.
“Overall, we believe there are signs that the implementation of orthodox monetary policies, the rebalancing of the economy, the increase in domestic savings, the slowdown in consumption, and consequently, the decrease in imports are beginning to benefit the economy,” said Gill.
“Our fundamental scenario is that the Turkish economy will benefit from a soft landing,” he noted.
Gill also outlined the conditions that would be sought for a potential future upgrade in Türkiye’s credit rating.
“We could raise the rating if we see improvements in the balance of payments results, an increase in domestic savings, an appreciation of the Turkish lira, and an increase in Türkiye’s usable foreign exchange reserves,” he said.
Anais Ozyavuz, the associate director of Financial Institutions Ratings for EMEA at S&P, evaluated the outlook of Turkish banks during the meeting.
Ozyavuz assured that Turkish banks have sufficient capital buffers and commented on the anticipated manageable capital loss due to the further depreciation of the currency.
“We expect some capital loss in banks due to further depreciation of the currency. But I believe these will be manageable conditions. Additionally, it is reassuring that most banks for the past two years have set aside free provisions that they can use in case of need,” she noted.
