Fitch sees positive shift in Türkiye's outlook amid policy reforms

LONDON

Fitch Ratings has revised its outlook for Türkiye from "negative" to "stable" and affirmed its “B“ rating.

The credit ratings agency in its assessment released Friday cited a return to a more conventional policy direction as the primary driver, according to Erich Arispe Morales, a senior director in Fitch Ratings' sovereigns group.

In an interview with Anadolu, Morales shared insights into Türkiye's economic outlook, highlighting several key factors that have led to a more positive assessment.

He outlined the reasons behind the revision, discussed the country's growth prospects, and weighed in on the possibility of an upgrade to "investment grade."

He explained that the country has moved away from targeted financial regulations that were perceived as "interventionist and unpredictable."

"This refers to reducing the monetary policy rate as the main mechanism to signal the central bank's policy direction. We have also seen that policy is more consistent than before and we have a very mixed policy focused on growth and employment," he said.

This shift towards more consistent and growth-focused policies despite previous macroeconomic imbalances has helped stabilize the country's economic outlook, he added.

"We can point out also that we have seen some reduction in uncertainty after the elections, given now that the policy direction is clear," he said.

Upgrade to investment grade'?

Regarding Türkiye's economic growth, Morales acknowledged that the second quarter of the year saw greater policy stimulus due to the general elections.

Looking ahead, Fitch Ratings predicts a growth rate of around 4.3% for this year.

He said, however, if policy consistency and tighter fiscal measures continue, growth could slow to 3% next year before recovering to approximately 3.4% in 2025.

While acknowledging that credit pressures have eased due to recent policy shifts, Morales emphasized that macroeconomic and external financial challenges persist.

Türkiye currently faces inflation of 59% as well as challenges related to an exploitative deposit scheme, he said.

Morales pointed out that achieving "investment grade" status for a country is a long-term effort and requires sustained policy improvements over time.

This effort not only boosts economic resilience but also enhances predictability for investors and benefits economic actors in Türkiye, he added.

Morales also commented on recent announcements, including funding from Gulf countries and the World Bank's decision to double investments in Türkiye.

He highlighted the importance of access to financing, especially as it pertains to the country's current account deficit.

The three-year commitment of bilateral and official financing represents a positive development for Türkiye, providing a stable source of funding for external accounts, he underlined.

Risks and Opportunities

In terms of opportunities, Morales noted that Türkiye currently enjoys a degree of credibility among investors due to recent policy adjustments.

Despite past reversals, the government's efforts to address macroeconomic imbalances and provide stability have garnered investor confidence, he underscored.

However, geopolitical risks, exposure to trade shocks, and global economic patterns remain concerns for the nation.

The key near-term risk, according to Morales, is policy predictability, especially with local elections on the horizon in March 2024, where additional stimulus measures could be deployed.