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Raising The Rating Depends On The Current Account

The markets have recently been following reports that the rating agencies are set to raise Turkey’s credit rating. But nothing has actually happened. When asked “What needs to be done in order for ...

Son Güncelleme: 01.07.2005

The markets have recently been following reports that the rating agencies are set to raise Turkey’s credit rating. But nothing has actually happened. When asked “What needs to be done in order for the rating to be raised”, S & P Turkey Analyst Farouk Soussa said that he was very happy with developments. “Turkey is making significant progress,” he said. But he notes that there are risks from the global and current account deficits.

The world’s leading rating agencies are closing monitoring the economic programme that is being applied in Turkey. It is possible to see their rating evaluations in the reports they publish and the statements they make. But on the markets there are those who do not believe that Turkey’s rating matches developments in the economy. For this reason there are expectations of an increase in the rating from leading rating agencies, particularly Moody’s and Standard and Poor’s (S & P). S & P’s evaluation is particularly important.

S & P’s Turkey analyst Farouk Soussa clarified the matter by saying: “There will not be an increase in the rating in the near future.” He says that he believes that the Turkish economy has made significant progress in recent years, noting: “The most important progress can be seen in the success in managing the economy and this is continuing today. There has been progress in structural reforms.”

He also stresses the importance of making the Central Bank autonomous, reducing inflation and interest rates and the financial discipline shown by the Turkish government. Soussa says that, when looks at Turkey from the perspective of these developments, then the picture is overwhelmingly positive. But as it continues to make progress in these areas, Turkey still faces possible risks. Farouk Soussa says that the Turkish economy is still vulnerable to outside shocks in particular and that this will continue to be a problem as long as the current account deficit continues to be financed by borrowing.

S & P Turkey analyst Farouk Soussa explained S & P’s view of Turkey, the potential risks it faces in the future the possibility of an increase in the rating


After the agreement with the IMF we heard many things. In fact we were waiting for this agreement to move forward. Just on the government side there were technical issues related to the determination of priorities. But we had no doubt that the government would reach an agreement with the IMF. This was reflected in the credit rating we announced last August. Indeed at that time we were also optimistic about Turkey and the IMF reaching an agreement. This is the reason we raised Turkey’s credit rating last August.

But what is important at the moment is what is needed in order for the credit rating to be raised. As things stand, the standby agreement with the IMF will not have such an effect. We are looking for developments that will have an impact on the business environment as regards foreign investment, such as progress in making structural reforms, reducing the current account deficit, realizing the privatization programme, and -- in addition to the  privatization programme -- structural changes that will increase direct foreign investment. There are the basic areas in which we want to see progress,

In addition, a natural upturn in the economy will always be a factor which can result in an increase in the rating. Developments such as Turkey’s continuing high growth rate maintaining the deflationary process, implementing economic reforms, and EU membership will naturally have an impact in terms of an increase in the credit rating. Raising Turkey’s credit rating is an ongoing story. But in order to see an imminent increase in our ratings there must be a significant improvement in the current account.