Moody's likely to pass its assessment of Turkey tomorrow, economists say
Economists suggest that the U.S.-based credit rating agency Moody's could pass its assessment of Turkey Friday.
After Moody's placed Turkey under scrutiny following the Gülenist Terror Group's (FETÖ) failed coup attempt on July 15 and downgraded the country's sovereign credit rating from "BAA3" to non-investment grade "BA1" and kept its financial outlook "stable," all attention turned to the rating agency's assessment of Turkey tomorrow.
Economists suggest that Moody's is likely to pass its assessment of Turkey, arguing that the credit agency's decision to take action is hasty as not enough time has passed since the previous ranking.
On Sept. 23, the agency said the country's finances have weakened amid increased political turmoil since July 15, while economic indicators state the opposite. Moreover, it was again Moody's who said the shock to Turkey's economy following the July 15 failed coup attempt had largely dissipated and there was no need to announce a decision for at least a month, and that statement was just two days before the downgrade on Sept. 23.
According to economists, the flexibility of the Turkish economy and dynamism to be able to recover from the shock of July 15th, the low deficit of the public budget and the low rate of public debt are among the strengths of the country in spite of everything. Foreign obligations, the current account deficit and the geopolitical developments are seen as the country's weaknesses.
Speaking to Anadolu Agency (AA), Bora Tamer Yılmaz, an economist from Ziraat Bank, recalled that Moody's kept Turkey's outlook as stable when it changed the rating. Stressing that the changes in credit ratings happen over years in their opinion, Yılmaz said the "stable" outlook may be accepted as a positive development in terms of credibility in a different conjuncture; however, it reflects the permanence of Turkey's credit rating in the current situation.
Pointing out that the outlook should return to "positive" in the first stage in order to rise to the sovereign level, Yılmaz said they do not expect an upward update to the credit outlook before late 2017 or early 2018.
Highlighting that the possible constitutional referendum is the first issue for credibility, Yılmaz suggested that the shaping of the legislative and executive bodies of the state and the implementation of structural reforms will increase the credibility of the country in a certain period of time, adding that due to the "stable" outlook, Moody's might pass its assessment tomorrow.
Stressing that the most powerful side of the Turkish economy has been its flexibility and dynamism to be able to recover from the shock of the failed coup attempt, Yılmaz said the authorities' ability to make quick decisions shows that Turkey has decent governance.
Yılmaz emphasized that recovery in Europe provides a positive outlook in terms of the country's foreign trade and the weakest point is that exchange rate stability cannot be achieved.
‘Hasty action has
low probability'Odeabank Economic Research and Strategic Planning Manager Şakir Turan said Moody's could pass without any explanation.
According to Turan, the credit rating agency is very unlikely to take urgent action despite many important developments both within the country and abroad following the recent review and grading changes; however, they anticipate that the agency can bring some positive benefits for Turkey.
Turan also stressed foremost that the fact that the Central Bank (CBRT) has implemented a hawk interest rate hike, which exceeds expectations, may be a positive reference in regard to CBRT's independence and increase in its credibility.
Bearing in mind that there may also be evaluations suggesting that growth may recover along with the fiscal policy and the relaxation in macroeconomic measures, Turan underlined the need to see whether the rising interest rates worldwide have become permanent and how the Fed will react to it.
Turan said if the uncertainty here diminished and rising interest rates started to become permanent, credit rating agencies would begin to attract more attention to Turkey's fragilities, suggesting that Turkey can be taken to a more positive point in this process as long as it can maintain its durability and improve its growth performance again once uncertainties diminish.
Noting that Turkey protects its durability in spite of all that happened and calling that a strong suit in its own right, Turan said the growth of the banking sector's sound structure and the limited increase in the delayed accumulation despite all the recent disturbances can be counted among Turkey's strong characteristics; however, it is still necessary to keep the fragility of foreign demand conditions due to geopolitical problems among Turkey's weaknesses.
‘Unlikely that Moody's will
announce new decision'
Halk Yatırım Research Director Banu Kıvcı Tokalı also recalled that Moody's brought the weakening seen in the strong base balances, mainly in the country's external financial needs and growth, to the fore to justify the investment level downgrade approximately two months ago.
Explaining that the pressure of the new economic policy approach on developing countries has become an additional risk factor in the meantime, especially after the U.S. presidential elections, Tokalı said there are also some uncertainties regarding the downward revisions of the international credit rating agencies related to the growth rate of the next year and the outlook of EU membership negotiations, noting that it does not seem likely for Moody's to announce the new decision on the outlook in a short period of time, given the decisions made during the previous periods.
Recalling that this kind of decision was most recently made during the 2001 crisis, Tokalı said, "When we consider the economic administration's supportive measures regarding growth and its determination to revive the reform program, we see the possibility of a new downward revision in financial outlook this week as being quite low."
Denizbank Private and Investment Group Manager Orkun Gödek said Moody's may want to assess the possible impacts of the recent developments, the depreciation of the local currency, and the slowdown in the third quarter, which is now recognized by official institutions, in a short note.
Citing that an update is not expected with regards to the country's credit rating, Gödek said possible positive or negative effects of public expenditure increases mentioned in the Medium Term Program (MTP) on the budget and the economy will be monitored for the first half of 2017, at the very least: "Likewise, the expectations regarding the referendum process, the outcome and the future expectations would be assessed again in the second half of the year," Gödek said.
While Moody's downgraded Turkey's credit rating to "BA1" and kept its outlook "stable" on Sept. 23, Standard & Poor's (S&P) classified Turkey's rating at speculative "BB" grade and kept its outlook as "stable" on Nov. 4. Fitch, on the other hand, kept Turkey's outlook as "negative" and gave a "BBB-" rating on Aug. 19.
After Moody's placed Turkey under scrutiny following the Gülenist Terror Group's (FETÖ) failed coup attempt on July 15 and downgraded the country's sovereign credit rating from "BAA3" to non-investment grade "BA1" and kept its financial outlook "stable," all attention turned to the rating agency's assessment of Turkey tomorrow.
Economists suggest that Moody's is likely to pass its assessment of Turkey, arguing that the credit agency's decision to take action is hasty as not enough time has passed since the previous ranking.
On Sept. 23, the agency said the country's finances have weakened amid increased political turmoil since July 15, while economic indicators state the opposite. Moreover, it was again Moody's who said the shock to Turkey's economy following the July 15 failed coup attempt had largely dissipated and there was no need to announce a decision for at least a month, and that statement was just two days before the downgrade on Sept. 23.
According to economists, the flexibility of the Turkish economy and dynamism to be able to recover from the shock of July 15th, the low deficit of the public budget and the low rate of public debt are among the strengths of the country in spite of everything. Foreign obligations, the current account deficit and the geopolitical developments are seen as the country's weaknesses.
Speaking to Anadolu Agency (AA), Bora Tamer Yılmaz, an economist from Ziraat Bank, recalled that Moody's kept Turkey's outlook as stable when it changed the rating. Stressing that the changes in credit ratings happen over years in their opinion, Yılmaz said the "stable" outlook may be accepted as a positive development in terms of credibility in a different conjuncture; however, it reflects the permanence of Turkey's credit rating in the current situation.
Pointing out that the outlook should return to "positive" in the first stage in order to rise to the sovereign level, Yılmaz said they do not expect an upward update to the credit outlook before late 2017 or early 2018.
Highlighting that the possible constitutional referendum is the first issue for credibility, Yılmaz suggested that the shaping of the legislative and executive bodies of the state and the implementation of structural reforms will increase the credibility of the country in a certain period of time, adding that due to the "stable" outlook, Moody's might pass its assessment tomorrow.
Stressing that the most powerful side of the Turkish economy has been its flexibility and dynamism to be able to recover from the shock of the failed coup attempt, Yılmaz said the authorities' ability to make quick decisions shows that Turkey has decent governance.
Yılmaz emphasized that recovery in Europe provides a positive outlook in terms of the country's foreign trade and the weakest point is that exchange rate stability cannot be achieved.
‘Hasty action has
low probability'Odeabank Economic Research and Strategic Planning Manager Şakir Turan said Moody's could pass without any explanation.
According to Turan, the credit rating agency is very unlikely to take urgent action despite many important developments both within the country and abroad following the recent review and grading changes; however, they anticipate that the agency can bring some positive benefits for Turkey.
Turan also stressed foremost that the fact that the Central Bank (CBRT) has implemented a hawk interest rate hike, which exceeds expectations, may be a positive reference in regard to CBRT's independence and increase in its credibility.
Bearing in mind that there may also be evaluations suggesting that growth may recover along with the fiscal policy and the relaxation in macroeconomic measures, Turan underlined the need to see whether the rising interest rates worldwide have become permanent and how the Fed will react to it.
Turan said if the uncertainty here diminished and rising interest rates started to become permanent, credit rating agencies would begin to attract more attention to Turkey's fragilities, suggesting that Turkey can be taken to a more positive point in this process as long as it can maintain its durability and improve its growth performance again once uncertainties diminish.
Noting that Turkey protects its durability in spite of all that happened and calling that a strong suit in its own right, Turan said the growth of the banking sector's sound structure and the limited increase in the delayed accumulation despite all the recent disturbances can be counted among Turkey's strong characteristics; however, it is still necessary to keep the fragility of foreign demand conditions due to geopolitical problems among Turkey's weaknesses.
‘Unlikely that Moody's will
announce new decision'
Halk Yatırım Research Director Banu Kıvcı Tokalı also recalled that Moody's brought the weakening seen in the strong base balances, mainly in the country's external financial needs and growth, to the fore to justify the investment level downgrade approximately two months ago.
Explaining that the pressure of the new economic policy approach on developing countries has become an additional risk factor in the meantime, especially after the U.S. presidential elections, Tokalı said there are also some uncertainties regarding the downward revisions of the international credit rating agencies related to the growth rate of the next year and the outlook of EU membership negotiations, noting that it does not seem likely for Moody's to announce the new decision on the outlook in a short period of time, given the decisions made during the previous periods.
Recalling that this kind of decision was most recently made during the 2001 crisis, Tokalı said, "When we consider the economic administration's supportive measures regarding growth and its determination to revive the reform program, we see the possibility of a new downward revision in financial outlook this week as being quite low."
Denizbank Private and Investment Group Manager Orkun Gödek said Moody's may want to assess the possible impacts of the recent developments, the depreciation of the local currency, and the slowdown in the third quarter, which is now recognized by official institutions, in a short note.
Citing that an update is not expected with regards to the country's credit rating, Gödek said possible positive or negative effects of public expenditure increases mentioned in the Medium Term Program (MTP) on the budget and the economy will be monitored for the first half of 2017, at the very least: "Likewise, the expectations regarding the referendum process, the outcome and the future expectations would be assessed again in the second half of the year," Gödek said.
While Moody's downgraded Turkey's credit rating to "BA1" and kept its outlook "stable" on Sept. 23, Standard & Poor's (S&P) classified Turkey's rating at speculative "BB" grade and kept its outlook as "stable" on Nov. 4. Fitch, on the other hand, kept Turkey's outlook as "negative" and gave a "BBB-" rating on Aug. 19.