By Burcu Arik
ISTANBUL
Outflow of foreign capital and geopolitical risks are among the significant external pressures on the Turkish economy, a Moody's analyst said on Wednesday.
Alpona Banarji, a senior analyst at Moody's credit rating agency, said that Turkey's exposure to volatility in foreign capital inflows has been compounded by the recent rise in geopolitical risks, continued domestic policy uncertainties, and the reduction in global liquidity that is likely to stem from the U.S. Federal Reserve's raising of short-term interest rate targets for its federal funds next year.
Turkey's sovereign credit profile is being challenged by a growth environment that is much weaker than it was in 2010 to 2013, the analyst said. Moody's also expects the cost of securing foreign capital inflows to increase at a time when the country's external financing needs are equivalent to 25 percent of GDP in 2014 to 2015.
- Turkish economy has great strengths
But the Moody's analyst said that Turkey's economy has great strengths, thanks to the country's large, dynamic, and diversified economy, and strong government finances.
"Turkey is one of the biggest economies in the world, positioned as a regional hub, with diverse trade linkages beyond its traditional markets in Europe."
Banarji noted the country's fiscal strength is considerable. "General government debt has been reduced and is stable. The debt affordability metric has been reduced to 8.6 percent in 2013 from 58 percent in 2011."
"The composition of government debt has become more resilient through lengthened maturities and a reduced share of foreign-currency denominated liabilities," she added.
Noting that Turkey is largely dependent on domestic demand and less so on net exports, Banarji said: "Low and declining domestic savings, pressure on competitiveness and the increasing energy imports have led to the widening of the current account deficit."
Moody's lowered the outlook for Turkey to 'negative' from 'stable' on April 11 2014, while maintaining the country's Baa3 rating.
"The rating outlook would go back to stable if Turkey's domestic and geopolitical tensions abated, investor confidence in the economy improved and pressure on the country's external finances eased," she added.
www.aa.com.tr/en
