Turkey to rebut S&P rating downgrade with strong economy, say analysts

Turkey should respond to a rating downgrade by the international ratings agency Standard & Poor's (S&P) with its strong economy, experts said yesterday. The financial services company downgraded Turkey's credit rating from "BB+" to "BB" on Wednesday with a negative outlook following a failed military coup on Friday.

"Turkey will need to cope with [the downgrade] and counter by showing the resilience of the government and economy in the coming months," Cyril Widdershoven, a partner of the VEROCY consultancy firm in the Netherlands, told Anadolu Agency. "If the economic resilience of Turkey is strong enough, an upgrade could be expected also soon, bringing additional focus and emphasis on growth potential."

Turkey's annual growth was projected to be 3.4 percent in 2016, compared to the four percent seen in 2015, according to S&P, which on May 6 affirmed Turkey's rating at "BB+" and revised its outlook upward to stable from negative. The rating agency then emphasized the upward revision with a statement that read: "The Turkish economy was resilient to the challenges posed by the busy electoral calendar in 2015, the end of the peace process with Kurdish militants, heightened regional instability and weak investor sentiment toward emerging markets. The stable outlook reflects the balance between the resilience of the Turkish economy and modest fiscal deficits against lingering regional and domestic risks and still-high external financing needs."

Widdershoven emphasized that the Turkish government should ensure that markets and investors will not be affected adversely by uncertainties stemming from the attempted coup.

"Investors' confidence is dented at present, which is normal in the light of current developments. However, taking the political-military issues out of the constellation, overall economic issues could be minor, so confidence overall can be restored. If the political dust can settle quickly, the impact of the current crisis could be still mitigated."

Ed Hirs, an economist at the University of Houston, Texas, also stressed the government's role and resilience of the economy to weather the storm. Referring to S&P's downgrade, he said: "This is not the fault of the government, but of the attempted coup."

Hirs stated that the rating agencies are looking for the Turkish government to do its best to reassure investors that business would continue as usual, despite all the turmoil. "There is some uncertainty, and the [rating] agencies want that uncertainty reduced as the nation recovers from the coup attempt." Hirs added that he does not think that the downgrade will create serious concern for Turkey's international trading partners. "A ratings change does not change the working relationships. At worst, the ratings change may increase the cost of borrowing for major projects."