ISTANBUL: Ratings agency Fitch on Friday maintained its “junk” rating on Turkey’s sovereign debt, citing domestic political and regional risks as well as the impact of economic stimulus measures that could weaken the country’s fiscal performance.
It also affirmed a “stable” outlook for the country.
Fitch in January lowered its rating on Turkey to BB+ from BBB-, its lowest investment-grade rating, expressing concern about political insecurity after a failed coup one year ago.
In its latest update, it said the scale of the year-long crackdown since then, during which 50,000 people have been arrested and 150,000 have been sacked or suspended, “continues to unnerve some economic actors.”
Sweeping powers won by President Tayyip Erdogan in a tightly contested April referendum entrenched a system in which checks and balances have been eroded, it said.
While noting that economic stimulus measures have boosted growth this year, it said they would weigh on Turkey’s fiscal performance, forecasting a widening of the government deficit to 3.1 percent of GDP – the largest since 2010.
Finance Minister Naci Agbal said on Monday Turkey’s budget deficit rose to 25.2 billion lira ($7.13 billion) in the first half of the year as fiscal measures to boost the economy fuelled spending. But he said the stimulus was expected to help lift economic growth above forecasts this year.
“Continuation of stimulus measures once the recovery becomes entrenched could raise questions over the commitment to fiscal discipline,” Fitch said.
Turkey’s current account deficit – one of the highest in the G20 – had widened because of high commodity prices, while security concerns after the coup and attacks in Turkey last year would maintain pressure on tourism revenues.
“Financing of current account deficits will keep net external debt on an upward trend,” Fitch said.
The agency said Turkey’s debt/GDP would remain around 28.3 percent for the next two years. Contingent liabilities are rising, but from a low base and are unlikely to have a material impact on government finances over the same period, it said.
It predicted average economic growth of 4.3 percent between 2017 and 2019 – a level substantially down from the 7.1 percent recorded between 2011 to 2015, but higher than the median level for countries with BB ratings.
Fitch report: http://bit.ly/2uiNn9T ($1 = 3.5324 liras)