Moody’s says Turkey resilient to financial or political shocks

In its annual report on Turkey, Moody’s Investors Service says the government’s Ba3 debt ratings reflect an economy resilient to financial or political shocks as a consequence of fiscal consolidation, monetary stability, and the floating exchange rate.
The ratings outlook is stable, while Turkey‘s Ba1 foreign currency country ceiling for bonds is based on the foreign-currency government bond rating of Ba3 and a low risk of a payments moratorium in the event of a government bond default.

“The economy has undergone a substantial positive transformation in the past six years thanks to determined policy reform,” said Kristin Lindow,  Moody’s Senior Credit Officer and author of the report.

“Against the backdrop of these reforms and ample global liquidity, net inflows of
higher quality capital have thus far comfortably covered the country’s large external financing requirements.”

Virtuous debt dynamics and a strong currency have lowered the public debt burden considerably in recent years. Still, the analyst points out that Turkey‘s financial markets were buffeted by global turbulence in May-June 2006 that was focused particularly on countries with wide current account deficits and substantial external financing and refinancing needs.

“Additional concerns were generated because of a renewed upturn in inflation that led to a significant overshooting of the newly-implemented inflation target,” said Lindow.

In addition, both the IMF program and the European Union accession talks have been dealt blows in recent months, including renewed delays in implementing crucial economic reforms agreed with the IMF and the partial suspension of membership negotiations with the EU, said Lindow.

“Policymakers nevertheless insist that structural economic and political reforms will continue over the medium term, although with interruptions likely to continue over coming months.”

“Turkey is heading into a politically eventful year, with presidential elections in May and parliamentary elections to follow. A number of foreign relations issues are also heating up,” Lindow cautions.

“Political uncertainty is likely to engender renewed financial volatility in 2007, although not likely enough to threaten the ratings.”