Moody’s affirms Turkey's credit rating and maintains negative outlook

The country’s current account deficit has more than halved compared with a year ago

Turkey's private sector remains relatively resilient to its currency's depreciation and shows overall improving conditions, Moody's has said. Photo: Reuters

Moody’s Investors Service affirmed the credit rating of Turkey, citing its improved reserve position and lower current account deficit.

The agency maintained Turkey’s “B2” long-term issuer rating, which is non-investment grade and subject to high credit risk.

Moody’s also maintained a negative outlook on the country because of its unpredictable policies.

“Irrespective of the current pressure on the currency, Turkey's fundamental external vulnerability risk has declined because of a lower current account deficit supporting a gradual rebuilding of foreign-currency reserves on a gross and net basis,” Moody’s said on Friday.

Turkey’s current account deficit has more than halved compared with a year ago, running at about $18.4 billion in the 12 months to September, compared with a deficit of $35bn in 2020. At the same time, the country's foreign currency reserves have more than doubled to $79.6bn as of November 26 compared with the trough reached in September 2020.

Moody's expects Turkey's real gross domestic product growth to slow to about 4 per cent in 2022 compared with the 11 per cent growth rate projected for this year.

“Despite the improvements … the decision to maintain the negative outlook predominantly reflects the elevated policy unpredictability, in particular, the central bank's monetary policy stance that is the cause of pressure on the exchange rate and volatile international capital flows,” Moody’s said.

The current economic policy stance will also "lead to significantly higher inflation over the coming months, eroding households' purchasing power and increasing the likelihood of a sharp slowdown in growth despite lower interest rates.”

The latest assessment comes after Turkish President Recep Tayyip Erdogan last week appointed Nureddin Nebati as the Minister of Treasury and Finance after the resignation of Lutfi Elvan.

The appointment follows the Turkish lira's 27 per cent crash in the past month alone. It has hit a series of record lows over the direction of economic policy.

"Turkey's diversified private sector shows relative resilience to currency volatility as the country's banks and corporates with borrowings abroad are well hedged against the depreciation of the currency, including by holding significant foreign-currency deposits abroad," the agency, said.