Financial experts are forecasting possible credit rating upgrades from other credit rating agencies following the recent elevation of Turkey’s credit rating from “B” to “B+” by Fitch Ratings, accompanied by a shift in the outlook from “stable” to “positive.”
Fitch Ratings, in its decision to upgrade Turkey’s credit rating, acknowledged the effectiveness of Turkey’s rule-based and predictable policies, signaling positive outcomes from the economic management initiated under the leadership of Minister of Treasury and Finance Mehmet Şimşek.
Prof. Dr. Sefer Şener, a faculty member at Istanbul University Faculty of Economics, highlighted the positive impact of the Medium-Term Program on the economy’s roadmap, stating that it has injected a positive atmosphere into the markets. He emphasized that creating a roadmap for combating inflation, reducing the policy interest rate from 8.5% to 45%, and achieving a 4.5% growth rate in 2023 have begun to alter the international perception of Turkey.
Şener remarked, “In the last ten months, the Central Bank of the Republic of Turkey’s reserves have surpassed $130 billion again, and the current account deficit, which closed 2023 at $45 billion, is expected to decrease to levels of $36-37 billion this month. The budget deficit, excluding earthquake expenses, is at 2.6%, below Maastricht criteria, and efforts to exit the gray zone are crucial factors leading to the credit rating upgrade.”
He further predicted that Fitch’s rating improvement would attract more foreign investment to Turkey in the future, allowing both the public and private sectors to access capital more affordably from international markets. Şener concluded, “If significant decreases in inflation occur as expected from July onwards, and if macro-prudent measures and structural reforms are emphasized, it would not be surprising if other credit rating agencies also upgrade Turkey’s ratings by the end of the year.”
Prof. Dr. Erhan Aslanoğlu, Vice Rector at Istanbul Topkapı University, emphasized the positive nature of Fitch’s credit rating upgrade, particularly highlighting the shift in outlook from “stable” to “positive.” He identified two crucial factors contributing to these developments: a strong tightening of monetary policy and a more substantial reduction in the current account deficit than anticipated.
Aslanoğlu pointed out that Fitch generally places a greater emphasis on the strength of monetary policy. He noted, “The strong steps and determination of the Central Bank, especially the decisions taken in the last week, seem to have influenced these steps.” He also emphasized that the decrease in the current account deficit has a diminishing effect on foreign exchange demand and suggested that a potential increase in interest rate reduction possibilities in developed countries would alleviate financing concerns.
In conclusion, Aslanoğlu suggested that if similar policies continue post-election, credit rating upgrades from other rating agencies could also be expected.
source: aa.com.tr/ prepared by Melisa Beğiç