S&P cuts Turkey debt rating further, projects 2019 recession
WASHINGTON: Global ratings agency S&P on Friday cut Turkey’s debt grade for the second time in four months, moving it further into junk territory and predicting the country will go into recession next year. The agency downgraded the rating a notch to ‘B+’ and pointed to the weakening of the Turkish lira in the past two weeks, amid an overheating economy and high debt levels. Moody’s likewise cited the weakening lira and downgraded Turkey’s debt to Ba3 from Ba2, also citing the declining lira, “heightened concerns” for the central bank’s independence and “the lack of a clear and credible plan” to address the causes of recent financial troubles.
The currency has come under increased pressure amid the worsening dispute with the United States, including President Donald Trump’s decision to double tariffs on steel and aluminum imports from the country. “The downgrade reflects our
expectation that the extreme volatility of the Turkish lira and the resulting projected sharp balance of payments adjustment will undermine Turkey’s economy,” S&P said in a statement.
“We forecast a recession next year. Inflation will peak at 22 percent over the next four months, before subsiding to below 20 percent by mid-2019.” The declining currency is increasing pressure on indebted local companies, which also could harm the balance sheets of domestic banks, the statement said.
“Despite heightened economic risks, we believe the policy response from Turkey’s monetary and fiscal authorities has so far been limited.” The dispute and war of words between Trump and Turkey’s President Recep Tayyip Erdogan has escalated over Ankara’s jailing of American evangelical pastor Andrew Brunson since October 2016, who Trump has said is a “hostage.” US Treasury Secretary Steven Mnuchin warned on Thursday the United States would impose more sanctions unless Brunson was released. Turkey fired back threatening to respond to any additional US action.
The lira has plunged as investors fret about Erdogan’s influence over monetary policy. Heavy selling in recent weeks has spread to other emerging market currencies and global stocks and deepened concerns about the economy, particularly Turkey’s dependence on energy imports and whether foreigncurrency
debt poses a risk to banks. On Friday, Turkey’s battered lira weakened 3 percent after a Turkish court rejected an American pastor’s appeal for release, drawing a stiff rebuke from President Donald Trump, who said the United States would not take the detention “sitting down”.
China support
China supports the Turkish government’s efforts to safeguard security and economic stability and believes that it will overcome its “temporary difficulties”, China’s top diplomat, State Councillor Wang Yi, told Turkey’s foreign minister yesterday. China’s foreign ministry said in a statement that Wang had made the comments in a phone call with the Turkish minister, Mevlut Cavusoglu. The Turkish lira has lost a third of its value against the dollar this year as worsening relations between NATO allies Turkey and the United States added to losses driven by concerns over President Tayyip Erdogan’s influence on monetary policy. Cavusoglu spoke about the current situation in Turkey during the phone call and said his government was willing to strengthen strategic communication with China, the statement said. Beijing first commented on the issue on Friday in a foreign ministry statement in which it offered moral support to Turkey.