Senior Turkish officials have criticized the cut to Turkey’s sovereign credit rating by ratings agency Moody’s, claiming that the move is “biased” and does not reflect the realities of Turkey’s macro indicators.
Moody’s cut Turkey’s long-term issuer and senior unsecured bond ratings by one notch to the speculative or “junk” level of Ba1 with a “stable” outlook late on Sept. 23, citing risks related to the country’s sizeable funding requirements and a slowing in its GDP growth and institutional strength.
The Moody’s cut came a day after Turkish President Recep Tayyip Erdoğan
criticized ratings agencies in an interview with Bloomberg in New York.
“I don’t care at all [if they downgrade],” Erdoğan said, accusing them of making decisions based on politics rather than economic fundamentals.
Prime Minister Binali Yıldırım said the action showed Moody’s was “not impartial” and not basing its ratings solely on economic factors.
“We don’t believe these assessments are impartial. We believe they are attempting to create a certain perception of the Turkish economy,” Yıldırım told reporters on Sept. 24.
“This rating agency said two days ago that the shock to Turkey’s economy had largely dissipated. What changed in two days? We cannot understand it,” he added, saying Turkey would not define its policies according to the reports of “a couple of rating agencies.”
S&P Global Ratings had also downgraded Turkey in July following the failed coup attempt in the country, meaning that Fitch now remains the only major agency keeping Turkey above junk.
Deputy Prime Minister Nurettin Canikli said Moody’s had “turned a blind eye” to recent reforms and steps Ankara
has taken to boost growth and savings.
“Despite all the global and regional risks, the Turkish economy’s pace of growth is among the top five economies,” Canikli added in a statement.Turkey ‘to keep making reforms’
One of first responses to Moody’s downgrading came from Deputy Prime Minister Mehmet Şimşek.
“The best reaction to rating agencies is to accelerate structural reforms further and to maintain our fiscal discipline,” Şimşek tweeted, adding that the economic fundamentals of Turkey are robust and resistant to shocks.
He also noted that Turkey’s economy achieved growth of 5.2 percent after the global economic crisis.
Economy Minister Nihat Zeybekci also criticized the move, saying the decision “does not reflect the realities” of the Turkish economy.
“The Turkey’s economy grew 3.9 percent in the first half of the year, although the global economy has slowed down. At the same time, our current account deficit declined and our budget gave a surplus, although many other economies posted a budget deficit,” Zeybekci tweeted, adding that there had been no deterioration in the foreign financing conditions of the private sector or the public sector.
“We will continue to make reforms that will improve the business climate by maintaining our political stability and market-friendly approach,” he added.Moody’s names two key reasons
Moody’s, which had previously delayed its decision, cited 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, as reasons for the downgrading.
The agency said it expects the deterioration in Turkey’s credit rating to continue over the next two to three years.
Moody’s said a fall in tourism receipts, which represent 4.4 percent of the economy, due to Russia’s sanctions last year and a rise in bomb attacks inside the country had weakened its balance of payments.
“More recently, the government’s response to the unsuccessful coup attempt raises further concerns regarding the predictability and effectiveness of government policy and the rule of law going forward. This has consequences for both institutional and economic strength,” it noted, adding that the prospect of sustained reform implementation that decisively moves the economy from consumption and external capital-driven growth to a more balanced growth model is low.
Moody’s also said it sees Turkey’s real GDP growth averaging 2.7 percent between 2016 and 2019.
GDP growth slowed to 3.2 percent in the second quarter. Turkey may cut its official target for 4.5 percent GDP growth this year as the impact of the coup attempt takes its toll on the economy.
Moody’s added that the stable outlook reflected “the government’s robust balance sheet, which would allow for the absorption of shocks and flexible responses.”