Turkey to draw lessons from Moody’s cuts
Agbal vows structural measures after downgrade
ANKARA, Sept 28, (RTRS): Turkey will draw lessons from its credit downgrade to “junk” by Moody’s but is already tackling some of the challenges highlighted by the agency, including structural reform and improving the quality of its institutions, Finance Minister Naci Agbal told Reuters.
In his first interview since Moody’s cut Turkey’s sovereign debt to non-investment grade late on Friday, Agbal acknowledged that a failed coup in July had taken a toll and said Turkey’s economic growth was likely to be below 4 percent this year, missing the government’s 4.5 percent target.
But he forecast that the $720 billion economy would pick up again in 2017 and took a sanguine view of the rating agency’s downgrade, saying the issues it raised were already on the government’s agenda.
“The need for structural reform, an increase in potential growth, and an improvement in institutional quality and our competitive position ... are all true,” Agbal said in an interview in his office in Ankara.
“Turkey’s long-term growth can only be achieved through an emphasis on structural reform. And at the start of that are democracy, democratic reforms, and the strengthening of the rule of law,” Agbal said.
Gulen denies the government’s charges.
Turkey’s annual economic growth dipped to 3.1 percent in the second quarter from 4.7 percent in the first and is expected to slow further due partly to the fallout from the coup attempt.
Agbal said the 4.5 percent growth target set for 2016 in the government’s medium-term economic programme, its rolling three-year policy plan, no longer seemed attainable and a new programme would be announced in early October.
“Our revised expectation appears to be below 4 percent. We will announce a realistic path for both 2016 and 2017,” he said, adding that growth would be stronger next year than this.
Turkey depends on investment to fund its current account deficit – one of the biggest in the G20 – and service its foreign debt, requiring more than $200 billion a year. JP Morgan warned in July that a downgrade to junk could prompt the sale of $10 billion in Turkey’s sovereign and corporate debt.
The market fall-out was, in the event, relatively short-lived. By late on Monday, the first trading day after the downgrade, the lira had recovered much of its losses and investors paid more than expected in three bond auctions, showing strong demand for the very debt Moody’s now classifies as sub-investment grade.
“There may be some increases in banks’ foreign borrowing costs. But the increase will be limited to 25-50 basis points, which is not very significant,” said Hakan Binbasgil, the chief executive of Akbank, one of Turkey’s biggest lenders.
“The banking sector will not have a major problem with foreign borrowing,” he told reporters on Wednesday.