International credit rating agency Moody’s announced on January 16, 2025, that it has concluded its periodic review of Turkey’s credit ratings. This review, not considered a formal credit rating action, reassessed Turkey’s ratings based on recent developments and Moody’s key methodologies.
In its statement, Moody’s clarified: “This publication does not announce a credit rating action and is not an indication of whether a credit rating action is likely soon.” The review committee meeting was held on January 16, 2025.
Expectations and Analyst Predictions
Moody’s calendar included January 25, 2025, as a potential assessment date for Turkey. However, credit rating agencies are not obligated to release a statement on these dates.
A survey conducted by Foreks Haber revealed mixed expectations among economists regarding Turkey’s credit rating. Of 14 participants, 13 anticipated an upgrade from ‘B1’ to ‘Ba3’, while one expected the rating to remain at ‘B1.’ Additionally, 11 economists predicted a shift in the outlook to ‘stable,’ two expected a ‘positive’ outlook, and one anticipated a ‘neutral’ stance.
Moody’s had previously upgraded Turkey’s credit rating by one notch in 2024. The next review is scheduled for July 25, 2025.
Turkey’s Credit Profile: Key Insights
Moody’s highlighted several strengths and challenges for Turkey’s economy:
Strengths
- Resilient and Diversified Economy: Turkey’s ‘a2’ economic strength score reflects its large, dynamic economy and relatively high per capita income.
- Improved Policy Effectiveness: Increased monetary and macroeconomic policy effectiveness is a positive development.
- Improved Fiscal Metrics: The government’s moderate debt burden, which is below many rating peers, supports fiscal stability.
- Current Account Deficit Reduction: The deficit narrowed to 0.7% of GDP by September 2024 from 3.6% in 2023, aided by reduced import demand, lower energy prices, and robust tourism receipts.
Challenges
- Institutional Weaknesses: Governance strength, rated at ‘b1,’ is impacted by the high concentration of power in the presidency, which undermines the operational independence of institutions.
- External Vulnerabilities: Turkey remains exposed to external fragilities, including reliance on energy imports and sensitivity to exchange rate fluctuations.
- Inflationary Pressures: Consumer price inflation, although reduced to 44.4% in December 2024 from a peak of 75.4% in May 2024, remains a key challenge. Moody’s expects inflation to drop further to 30% by the end of 2025.
Positive Outlook and Future Upgrades
Moody’s maintains a positive outlook for Turkey, citing improved macroeconomic policy effectiveness and reduced political interference in monetary policy as drivers of optimism.
Potential triggers for a rating upgrade include:
- Sustained macroeconomic stability with moderate inflation.
- Reduced dollarization and dependence on credit-driven domestic growth.
- Structural reforms to lower sensitivity to external shocks, including energy import reliance.
Risks of Reversal
Moody’s warned of potential risks that could stall or reverse progress:
- Failure to sustain improvements in inflation and current account metrics.
- A return to previous policies marked by rapid credit growth and unsustainable wage increases.
- Weakening credibility of policymaking institutions.
While a downgrade is unlikely given the positive outlook, any reversal in economic policies or failure to implement structural reforms could prompt a shift to a stable outlook.
Moody’s emphasized that Turkey’s ability to sustain policy reforms and achieve long-term stability remains critical for further upward pressure on its credit rating.
Source: foreks.com