Standard & Poor's has raised Turkey's sovereign credit rating to BB+ from BB with a stable outlook, in a welcomed development following last year's surprising drop in the country's outlook from positive to stable. The rating firm mentioned Turkey's progress in the ongoing solution process to the Kurdish issue as being a factor in the upgrade, which now makes Turkey just one notch below investment grade.
S&P has had a rocky relationship with Turkey and especially Prime Minister Recep Tayyip Erdoğan, who reacted angrily last year to the rating agency's downward revision of its outlook to stable from positive. The agency converted its ratings on Turkey to "unsolicited" in January, meaning it is not paid by the country to provide cover but does so anyway.
A SOLUTION WOULD AFFECT RATINGS
"The Turkish economy appears to be slowly rebalancing, without undermining its relatively strong fiscal performance," S&P said in a statement. "The floating rate policy, the prudential limit on foreign loans and the deepening of the local capital market induce higher resistance to potential capital flows," S&P's statement said. The ratings agency lifted Turkey's sovereign credit rating to BB-plus from BB with a stable outlook, noting that its external financing requirements had declined thanks to strong exports and a drop in domestic demand.
S&P also said the upgrade partly reflected Turkey's progress in trying to end a three-decade war with the PKK terrorist organization. "We expect this to be more lasting than previous efforts: if so, security-related costs would decline and the regional economy, as well as cross-border trade flows, would be boosted," the ratings agency said adding that if a peaceful solution is reached on the Kurdish issue and if it reflects positively on Turkey's fiscal situation and foreign trade, then Turkey's rating could be positively affected in the long term. The ratings institution also said they predict Turkey's rate of economic growth will only increase in future years, however S&P also noted risks from municipal and presidential elections in 2014 and parliamentary elections in 2015.
Finance Minister Mehmet Şimşek said in a statement the S&P upgrade was "encouraging" but that Turkey still deserved better. Meanwhile Economy Minister Zafer Çağlayan expressed that he had been expecting such an upgrade, which he said does justice to the Turkish economy, "However, it is still not enough."
PRIME MINISTER ERDOGAN REACTS TO PREVIOUS STABLE RATING
When S&P dropped Turkey's credit rating outlook from positive to stable last year, Prime Minister Recep Tayyip Erdoğan was outraged, referring to the decision as being ideologically based. "I find it strange that while other bankrupt nations' ratings are being raised, ours is being dropped. Tayyip Erdoğan will not buy this. They will pay for this, because I no longer recognize your credit rating institution," Erdoğan had said at the time. In January, the treasury announced they would no longer be working with S&P and would instead solely be soliciting ratings from Fitch and Moody's.
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