A major ratings agency on Friday kept Turkey's credit rating at BB+ with a "negative" outlook.
The U.S.-based Standard & Poor's "affirmed its unsolicited 'BB+/B' long- and short-term foreign currency sovereign credit ratings on the Republic of Turkey," the agency said Friday in a statement.
The negative outlook reflects the agency's view of at least a one-in-three likelihood that it could downgrade Turkey within the next 12 months if there is a balance-of-payments or growth shock as a result of changed global liquidity conditions or an economic downturn in core trading markets.
A lower rating could be issued if S&P no longer considered the Turkish lira an actively traded currency that depends on the sovereign's institutional and policy settings preserving foreign investor confidence.
The S&P rating reflects its base-case scenario that Turkey's GDP growth will gradually return to above 3 percent, external debt metrics will stabilize, and fiscal policy will remain tight.
"Under such a scenario, we believe Turkey's situation in 2017 will be similar to today: stable public finances, private-sector reliance on external debt financing, and elevated inflation largely eroding any income gains," it said. The agency drew a similar conclusion for Turkey in May.
Standard and Poor's said that while risks to Turkey's economic prospects persist, a lot of the dangers are beyond the country's control.
"In the 18 months since the original tapering discussion by the U.S. Federal Reserve, the Turkish lira has depreciated 25 percent against the U.S. dollar," the statement said but indicated that the episode illustrated Turkey's vulnerability to changes in international sentiment.
The agency's rating is based partly on Turkey's monetary flexibility and the Treasury's policy of meeting net public sector financing needs by issuing in local currency.