Turkey’s long-term foreign and local currency Issuer Default Ratings (IDR) to be at ‘BBB-’ and ‘BBB’ respectively, according to confirmations made by Fitch Ratings.
The Outlooks appear to be constant and the issue ratings on Turkey's senior unsecured foreign and local currency bonds along with the Country Ceiling and the Short-term foreign currency IDR also have been confirmed at ‘BBB-’, ‘BBB’, ‘BBB’ and ‘F3’ respectively.
Turkey's Hazine Mustesarligi Varlik Kiralama Anonim Sirketi (Hazine) placed ratings of USD 1.5bn of global certificates (sukuk), which are due in March 2018, has also been affirmed at 'BBB-'.
The main key rating drivers according to Fitch, forecasts a general government primary surplus of 1.1 percent of GDP in 2015, unchanged from 2014. General government debt to GDP is forecast to maintain its downward trend and is expected to hit 30 percent at end-2017, compared with a 'BBB' median of 43.1 percent.
In addition, not enduring the slow pace of the structural reform, real GDP growth was 3.1 percent in 1H15, directed by expenditure and partly reflecting a revive in the agricultural sector following drought in 2014.
Higher frequency index showed that momentum slowed in 3Q mainly because of political concern and toughening financial conditions, with the August PMI below 50 and credit growth slowing.
The dropping value of the Turkish Lira has decreased consumer confidence, which hit its lowest level in August since March 2009.
“External vulnerabilities remain a feature of Turkey's sovereign credit profile but have not weakened materially since our last review” Fitch Ratings stated.
Net external debt has continued to rise according to Fitch ratings and is forecast to hit 37.6 percent of GDP at end the of 2015, and the current account deficit to narrow to 4.6 percent of GDP in 2015 from 5.8 percent of GDP in 2014, driven by lower oil prices.
Fitch also added that the gross external financing needs are very huge, at an estimated USD 213bn (including short-term debt) in 2015 and the international liquidity ratio at 70.3 percent is less than half the peer median, endangering Turkey to global financial market conditions.
Dependence on short-term borrowing has dropped due to macro-prudential policy and Fitch evaluates that banks have enough sources of foreign exchange liquidity to handle a severe financing shock.
Skepticism over the foreign assets of Turkish corporates and the effect of greater financing cost are a potential source of vulnerability, Fitch argues.
Foreign exchange reserves have dropped so far in 2015 and while still relatively large on a gross basis, at USD120.7bn in July 2015, they are around one-third of this in net terms, however, external debt rollover rates continue to exceed 100 percent.
Fitch predicts that a continuity of tightening of liquidity conditions will be followed by increase in policy rate.
Inflation is forecast to average 7.1 percent in 2015 and is not expected to fall very far below the 5 percent target throughout our forecast period. In part, this will be driven by the lira, which has fallen by around 30 percent against the US dollar so far this year,” Fitch ratings reported .