Source: Fitch Ratings; Republic of Türkiye
ratings changed to Positive from Stable; Dec 6th, 2005
Fitch Ratings-London/Istanbul-06 December 2005: Fitch Ratings has
today changed the Republic of Türkiye's rating Outlook to Positive from
Stable. The Long-term foreign currency and local currency ratings are
affirmed at 'BB-' (BB minus). The Short-term rating is also affirmed at 'B'
as is the Country Ceiling of 'BB-' (BB minus).
'Türkiye's sovereign creditworthiness continues to improve,
underpinned by solid economic growth, falling government deficit and debt
burdens and broad political and policy stability,' says Nick Eisinger, Lead
Analyst for Türkiye. Challenges lie ahead on both the political and
external fronts, but Fitch remains confident that the authorities will
continue to adhere to their reform agenda, in part guided by the ongoing
IMF programme and the start of EU accession negotiations. The economy
remains vulnerable to external shocks, but these risks have been eased as a
result of key structural changes including a sustained fall in inflation,
the shift to a floating exchange rate regime and major improvements in the
balance sheet of the financial system.
Despite these successes, strong domestic demand, coupled with high
global oil prices, has led to a sharp widening in the current account
deficit, forecast at 6.3% of GDP for 2005 and 2006, and representing the
largest external deficit in nominal terms of any major emerging market. The
quality of external financing is improving slowly as the privatisation
programme gains momentum and foreign direct investments in the banking
system and elsewhere grows, but short-term debt-creating flows still
constitute a large share of external borrowing. This leaves Türkiye
vulnerable to changes in global liquidity and risk aversion, and narrows
the margin for policy errors. "Despite structural changes, the public
debt dynamics and financing burden remain geared to interest and exchange
rate developments, and while it would take a series of deep and prolonged
shocks to place debt dynamics back on an unstable path, such an eventuality
cannot be ruled out entirely," adds Mr. Eisinger.
Triggers for an upgrade of the sovereign ratings include the passage
into legislation of the social security reform, continued disinflation
success and sensible monetary policy management. The external financing
picture, in particular, remains a critical factor given the potential
impact that current account financing problems and the subsequent exchange
rate adjustment could have on public finances, the disinflation process,
interest rate volatility and real economic growth. Signs that the current
account deficit is expanding beyond the 6.3% of GDP that Fitch forecasts
for 2006 (unchanged on 2005 outcomes) would be of particular concern. Fitch
expects the quality of external financing to improve in 2006, but foreign
direct investment inflows will still only cover some 30% of the current
account shortfall next year, while it will be important for the central
bank to continue building reserves in order to bolster external liquidity
coverage.
Separate rating action commentaries for other entities that are
affected by the sovereign rating change will be issued shortly. The full
credit report on Türkiye may be found at www.fitchratings.com.
Contact: Nick Eisinger, London, Tel: +44 20 7417 4341; Ed Parker +44
20 417 63401; Botan Berker, Istanbul +90 212 279 1065. Top
