Fiscal strength has been a source of stability and support to the overall risk profile of Turkey, Moody's Sovereign Risk Managing Director Yves Lemay has said.
"From a rating standpoint, fiscal strength has been a source of stability and support to the overall risk profile of the country. The historical track record of small budgetary deficits and relatively low public indebtedness, particularly relative to similar rated peers, continues to [be] a source of support to the rating," Lemay said in an interview with Anadolu Agency (AA) on Tuesday.
Noting that Moody's sees potential for some deficit slippage this year with regard to the economic support measures recently announced, he said: "But overall our assessment of the fiscal strength has been and remains a source of credit strength for Turkey.
"Turkey is going through a challenging time. What we have seen in the last several weeks is a manifestation of that external vulnerability which reflects the country's large current account deficit and high external debt."
He also said the credit rating agency has a constructive view of Europe's growth outlook this year and next. "It will continue to support exports from Turkey and, therefore, contributing to the growth narrative of the country.
"We have seen last year net exports turning positive in Turkey, partly as a result of stronger European growth. At the margin, it's a positive element that should help the net export to continue to support growth in the next few years," Lemay said. He said the direction of economic policies under the new administration and the extent to which they would address areas currently pressuring the credit profile of the country remains important for Moody's. "We are talking about things like structural reforms and inflationary pressures that need to be addressed as the economy is overheating," Lemay added.
Sharing the latest forecasts of the rating agency, Lemay said Moody's expects Turkey to grow by 4 percent this year and "slow down a bit further" in 2019.
He also said Turkey's current account deficit is expected to be "slightly above or around 5 percent" in 2018 and 2019.
"The growth forecast for this year did not capture the recent fiscal measures that were announced just last week. That could, in theory, potentially have a positive influence on growth this year although we also see downside risks to the growth story due to the economy overheating, persistent high inflation and external vulnerabilities."