The credit rating agency Fitch said Wednesday that the Turkish debt capital market (DCM) was buoyed by improved investor confidence with a shift toward more conventional macroeconomic policies.
Turkish DCM will continue to be driven primarily by sovereign financing, funding diversification goals and the Islamic finance development agenda over the next two years, it said in a report.
"The recent revival in foreign-currency debt issuances is a sign of lower near-term refinancing risks due to improved investor sentiment since Türkiye's adoption of more conventional macroeconomic policies," said Bashar al-Natoor, global head of Islamic finance at Fitch Ratings.
Following last year's presidential and parliamentary elections, Türkiye moved away from years of easing monetary policy. The central bank embarked on an aggressive rate hike cycle, raising its benchmark policy rate by 4,150 basis points to 50% since last June.
Fitch upgraded Türkiye's rating to "B+" from "B" early in March and revised Türkiye's outlook to a positive from stable. The agency had previously raised the country's outlook from negative in September 2023.
The rating agency expects banks and corporates to maintain a smaller DCM share than sovereigns, with issuance mostly opportunistic given the still-high costs.
In the medium term, DCM is projected to surpass $450 billion outstanding, with sukuk, or Islamic or Shariah-compliant “bonds,” to exceed 20% of the issuance mix, it added.
Turkiye is the fourth-largest sukuk issuer globally and one of just three G-20 countries active in the sukuk market. Fitch rates 90% of Turkish U.S. dollar sukuk.
"With over $225 billion external debt maturing in the next 12 months as of December 2023, Türkiye has always been vulnerable to shifts in investor sentiments, although the sovereign and private sector have proved resilient in their ability to access external financing," al-Natoor noted.
