TURKEY’S GROWTH IS VOLATILE COMPARED TO PEERS: FITCH

On December 14, Fitch Ratings held Turkey’s credit rating at “BB” with a negative outlook. Turkish economy is navigating out of a “sharp depreciation” of the lira, which “stemmed from the materialization of external financing vulnerabilities, aggravated by political and geopolitical developments, all areas of weakness for the sovereign credit profile,” the rating agency said in a statement.

Fitch warned that an over-emphasis on growth, which slowed significantly in the third quarter this year, poses more dangers. “The slowdown will challenge a longstanding commitment to fiscal discipline that underpins strong public finances relative to rating peers. Growth is volatile compared with peers, and inflation is higher and set to remain so. Structural indicators are generally better than rating peers,” it added.

The lira tumbled as much as 47 percent against the dollar in August. Turkish President Recep Tayyip Erdogan described the surge in the USD/TRY rate as “evidence of an attempted economic assassination.” The currency recovered most of its losses after significant tightening by the country’s Central Bank. The Bank increased its benchmark lending rate from 17.75 percent to 24 percent in mid-September. In its latest monetary policy committee meeting on December 13, the Bank held its key rate stable at 24 percent.

The Turkish economy expanded by 1.6 percent year-onyear in the third quarter, the country’s statistical office announced December 10.

“The negative outlook reflects the significant and multifaceted risks to the adjustment path posed by economic policy settings, domestic political and geopolitical risks and global financing conditions” Fitch said.

According to Fitch, the main factors that individually or collectively could lead to a downgrade are a failure to rebalance the economy and implement reforms that provide a path to addressing structural deficiencies and reducing inflation and external vulnerabilities, a sudden stop to capital inflows or hard landing of the economy, particularly if it heightens stresses in the corporate or banking sectors, a marked increase in the government debt/ GDP ratio to a level closer to the peer median and a serious deterioration in the political or security situation.