Turkish government snubs Fitch despite outlook affirmation

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Turkish Economy Minister Nihat Zeybekci reiterated his criticism of Fitch. AA Photo

Turkish markets are breathing a sigh of relief, after international credit ratings agency Fitch affirmed Turkey’s investment-grade ratings despite previous worries over a downgrade. However, the government still criticized the agency for “not appreciating Turkey’s success.”

After a long wait, Fitch affirmed Turkey’s credit rating as “BBB-” with a stable outlook late on Oct. 3.

All eyes had been locked on the decision, as it had been predicted to downgrade the country’s outlook from “stable” to “negative” amid deteriorating macroeconomic indicators.

“Turkey’s upgrade to investment grade in November 2012 owed much to a demonstrable track record of fiscal consolidation and a reasonably healthy banking system. These rating attributes largely remain intact,” Fitch said in its statement released to explain the drivers of the decision.

”The economy continues to show encouraging signs of rebalancing, notably a moderation in the current-account deficit (CAD) and credit growth with no ‘sudden stop’ of capital inflows,” it added, while warning that the country’s buffers against potential volatility remain relatively thin “in the light of the capacity for domestic policy reversals, doubts over the durability of economic rebalancing and rising geopolitical risk.”

Commenting on the decision late on Oct. 4, Turkish Economy Minister Nihat Zeybekci reiterated his criticism of the agency.

“These are already Turkey’s realities, Turkey’s credit rating should be much above this,” Zeybekci said.
 
“Positive or negative comments made about us hold a meaning in international markets, but we will look to our own way. We will steer our country to more development, investment and exports. Of course we will continue on our path by raising the production and goods supply to fight against inflation,” he added. “We always think our Turkey is not at a point that it deserves, hopefully it will be better.”

International rating agencies, particularly Fitch and Moody’s, have recently been the target of harsh criticism from the Turkish government, especially after President Recep Tayyip Erdoğan threatened to “cut ties” with the agencies, accusing them of political motives in their assessments of the country’s economy.

“We stopped our cooperation with Standard & Poor’s and if they continue on this path, I can tell the prime minister to stop cooperation with these two also. But we haven’t reached that point yet,” Erdoğan had said on Sept. 16.

He then continued with further broadsides against the same institutions in several speeches on different occasions.

Ahead of its decision on Oct. 3, Fitch had published several reports that triggered the government reaction by warning against political factors that could pose risks to the welfare of the economy, and it repeated some of these points in its Oct. 3 statement.

The agency said it expected the Turkish Central Bank “to remain under pressure to adopt a more expansionary policy stance at the earliest opportunity.”

“This leaves the coherence and credibility of policy-making subject to some doubt,” the agency said.

The agency also said “rising geopolitical risks and faltering economic recovery in the eurozone pose additional challenges for Turkish economic rebalancing,” but asserted that this would not reach disruptive levels.