No rating cut for Turkey expected from Fitch

by Gokhan Kurtaran

ANKARA

Fitch will not make any changes to Turkey's "investable" credit rating Friday, on the basis of the country's strong fiscal position, continued economic reforms, and political solidarity, experts told Anadolu Agency on Monday.

“It’s always difficult to predict the moves of the ratings agencies. Turkey’s fiscal position is quite strong, so the risk of default seems low," said William Jackson, senior emerging markets economist at Capital Economics.

Jackson argued that the ratings agencies might be concerned about the rise in political risk considering capital flows.

"I think the concern here is that, while the government’s debts are low, it could at some point be forced to help corporations or banks who have larger external debts,” said Jackson.

The Turkish government ran a budget deficit of 129 million liras ($44 million) in July, but it ran a surplus of 1.3 billion liras ($440 million) in January-July, according to the Finance Ministry.

Turkish officials, included President Recep Tayyip Erdogan, have vowed that fiscal discipline, which constitutes one of the most powerful aspects of the Turkish economy, will be maintained in the coming period.

Turkish leaders also said that they will continue to make structural reforms without pause after the July 15 defeated coup, whose damage to the economy was limited.

“I think they will follow Moody’s and play for time, so no downgrade yet. They will want to have more time to figure out the impact of the coup," argued Timothy Ash, a London-based strategist at Nomura International.

Ash remarked that Fitch was the first international credit agency to upgrade Turkey’s credit note to “investable” level in 2012 and has a moderate opinion about Turkey.

On Fitch's attitude towards Turkey, he added, "Fitch tend to be the more 'considered' of the three agencies, putting more weight on objective criteria, rather than more subjective issues such as institutional strength.”

“I think a downgrade is quite unlikely as Fitch still has Turkey on 'stable' outlook," said Christian Maggio, head of emerging markets research at TD Securities.

"Therefore, I think the most likely outcome is that the 'BBB-' ratings will be affirmed, while possibly changing the outlook to negative to reflect the greater uncertainty for the future. The change in outlook, however, is not a given: it may or may not be changed at this stage," Maggio added.

Ipek Ozkardeskaya, senior market analyst at London Capital Group, said the social and political risks were reduced remarkably based on Turkey's recovery process after the July 15 coup bid.

"There has been a backward trend towards pre-coup attempt levels of CDS in five years maturity. These are significant indicators, so I believe that Fitch will give confirmation to the country's actual credit note," said Ozkardeskaya.

The last time Fitch made an assessment on Turkey's outlook and credit rating was last February. Fitch's decision will come after the other two global rating agencies' actions.

Moody's announced on Aug. 9 that they would continue to assess the medium-term effect of the July 15 putsch attempt and its aftermath. The agency's decision to take its time was welcomed by financial markets.

However, despite the absence of any rating agreement between S&P and the Turkish Treasury, S&P made the questionable decision to cut the country's foreign-currency denominated debt rating one notch to BB with a negative outlook in the immediate wake of the July 15 coup bid.