NEWS RELEASE
Feb 21, 2014
R&I Changes Outlook to Stable: Republic of Turkey
Rating and Investment Information, Inc. (R&I) has announced the following:
ISSUER:
Republic of Turkey
Foreign Currency Issuer Rating: BB+
Rating Outlook: Stable, Changed from Positive
RATIONALE:
Turkey's economy is expected to slow down following a deceleration of capital inflows caused primarily
by changes in the global financial environment and growing political uncertainty. With the government's
fiscal position and the country's financial system remaining sound, R&I believes that the government and
the central bank can maintain economic stability. It would take more time than before, however, for the
economy to enter a steady, high growth path. Based on its view that the possibility of an upgrade to the
BBB rating category has diminished somewhat, R&I has changed the Rating Outlook to Stable from
Positive.
Triggered by the tapering of quantitative easing in the U.S., foreign capital is flowing out of emerging
countries. With their currencies sold and interest rates rising partly because of higher inflation, funding
conditions are worsening in these countries. Turkey, in particular, is suffering a major impact, since it runs
large current account deficits and short-term debt accounts for more than 40% of external debt. In 2013,
the current account deficit widened by US$16.5 billion from the previous year to US$65 billion, which
likely reached nearly 8% of gross domestic product (GDP).
Turkey's central bank raised key interest rates sharply to defend its currency and curb inflation. Given
low foreign reserves relative to short-term external debt, this monetary tightening was inevitable. The
depreciation of the currency is coming to a halt, but its downward trend will likely continue in light of the
global financial environment. A substantial reduction in inflation, which increased by 7.75% year on year
in January 2014, is difficult to envisage.
Although higher interest rates constrain economic activity, the current account balance is expected to
improve through a decrease in imports stemming from subdued domestic demand. Nevertheless, the
country's domestic demand-led growth structure propped up by short-term capital inflows will not be
redressed in the short term. In order to achieve high growth and at the same time improve the current
account balance and bolster economic stability, it will be essential to increase foreign direct investment
inflows and thereby develop industries that can expand exports or foster import substituting industries.
In addition to the global financial environment, the political situation requires attention. While local and
presidential elections will be held in March and August, respectively, and general elections are scheduled
for 2015, a corruption investigation involving cabinet ministers has thrown the government led by Recep
Tayyip Erdogan into turmoil. Political uncertainty is growing slightly, though the foundation of the Erdogan
administration has so far been said to be solid, with broad public support for the ruling Justice and
Development Party (AKP). Eyes must be on a further adverse impact the political turmoil may have on the
economy.
R&I expects that real GDP growth was around 3.6% in 2013 and may be far below the government's
target of 4% in 2014. In its medium-term plan through 2016, the government plans to contain the central
government's fiscal deficit at 1.9% of GDP in 2014 and achieve a 1% primary surplus in the public sector.
Close attention should be paid to its fiscal management to see whether the government will remain
committed to fiscal consolidation even in the face of the stagnant economy.
The primary rating methodology applied to this rating is provided at "R&I's Analytical Approach to
Sovereigns". The methodology is available at the web site listed below, together with other rating
methodologies that are taken into consideration when assigning the rating.
■Contact
: Investors Service Division
TEL.+81-(0)3-3276-3511
■Media Contact : Corporate Planning Division (Public Relations) TEL.+81-(0)3-3276-3438
Rating and Investment Information, Inc.
E-mail. [email protected]
Nihonbashi 1-chome Bldg., 1-4-1, Nihonbashi, Chuo-ku, Tokyo 103-0027, Japan
http://www.r-i.co.jp
Credit ratings are R&I's opinions on an issuer's general capacity to fulfill its financial obligations and the certainty of the fulfillment of its individual obligations as promised (creditworthiness) and are not
statements of fact. Further, R&I does not state its opinions about any risks other than credit risk, give advice regarding investment decisions or financial matters, or endorse the merits of any investment.
R&I does not undertake any independent verification of the accuracy or other aspects of the related information when issuing a credit rating and makes no related representations or warranties. R&I is not
liable in any way for any damage arising in relation to credit ratings (including amendment or withdrawal thereof). As a general rule, R&I issues a credit rating for a fee paid by the issuer. For details,
please refer to http://www.r-i.co.jp/eng/policy/policy.html.
© Rating and Investment Information, Inc.
NEWS RELEASE
http://www.r-i.co.jp/eng/cfp/about/methodology/index.html
ISSUER:
Republic of Turkey
RATING:
RATING OUTLOOK:
Foreign Currency Issuer Rating
BB+
Stable, Changed from Positive
■Contact
: Investors Service Division
TEL.+81-(0)3-3276-3511
■Media Contact : Corporate Planning Division (Public Relations) TEL.+81-(0)3-3276-3438
Rating and Investment Information, Inc.
E-mail. [email protected]
Nihonbashi 1-chome Bldg., 1-4-1, Nihonbashi, Chuo-ku, Tokyo 103-0027, Japan
http://www.r-i.co.jp
Credit ratings are R&I's opinions on an issuer's general capacity to fulfill its financial obligations and the certainty of the fulfillment of its individual obligations as promised (creditworthiness) and are not
statements of fact. Further, R&I does not state its opinions about any risks other than credit risk, give advice regarding investment decisions or financial matters, or endorse the merits of any investment.
R&I does not undertake any independent verification of the accuracy or other aspects of the related information when issuing a credit rating and makes no related representations or warranties. R&I is not
liable in any way for any damage arising in relation to credit ratings (including amendment or withdrawal thereof). As a general rule, R&I issues a credit rating for a fee paid by the issuer. For details,
please refer to http://www.r-i.co.jp/eng/policy/policy.html.
© Rating and Investment Information, Inc.
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