Fitch Deepens Turkeys Economic Wounds, Downgrades Rating With Outlook ‘Negative’

  • 7/15/2018
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Fitch Ratings International raised concern over the status of the Turkish economy in the next phase after the country has switched into a presidential system with a new government headed by President Recep Tayyip Erdogan. The agency lowered Turkey’s Issuer Default Rating (IDR) to ‘BB’ from ‘BB+’ and attached an outlook negative, entrenching the Turkish sovereign debt position more in the category of speculative investments, or junk. "Economic policy credibility has deteriorated in recent months and initial policy actions following elections in June have heightened uncertainty," Fitch said in a statement. "This environment will make it challenging to engineer a soft landing for the economy." The new measure means that Fitch may lower the Turkish economy rating again soon. “Fitch believes downside risks to macroeconomic stability have intensified owing to the widening in the current account deficit (CAD), more challenging global external financing environment, jump in inflation and the impact of the plunge in the exchange rate on the private sector, which has significant foreign currency-denominated debt,” it explained in its statement. Fitch’s statement came hours after the first meeting of the new Turkish government led by Erdogan, which was held on Friday evening and focused mainly on discussing urgent economic challenges. Turkey has officially shifted from the parliamentary system to the presidential system, which allows the president to have all the power and take executive decisions. Observers are concerned about the continuing negative economic indicators, the continued collapse of the Turkish lira against the dollar and it losing about a quarter of its value earlier this year in addition to the record rise in inflation, which has amounted to 15.4 percent in June. Following the first cabinet meeting, newly appointed Finance Minister Berat Albayrak said Turkey will prioritize the rebalancing of its economy and the fight against inflation, adding that fiscal policy will support these goals.

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