Moody’s Investors Service has revised Turkey’s economic outlook from stable to positive, attributing the change to a “decisive change” in economic policy by Turkish authorities. The move comes as the nation shifts towards a more orthodox monetary policy, addressing major macroeconomic imbalances. The rating agency affirmed Turkey’s government debt at B3, though six notches below investment grade, aligning it with countries like Angola and Barbados.
Analysts Kathrin Muehlbronner and Dietmar Hornung expressed optimism about the potential reduction of macroeconomic imbalances as a result of the return to orthodox monetary policy. Despite an expected rise in headline inflation in the short term, Moody’s sees signs that inflation dynamics are beginning to shift, suggesting the regaining of credibility and effectiveness in monetary policy.
Moody’s has commended Turkey for its move towards a mainstream economic policy following last year’s elections, emphasizing that a sustained commitment to the new plan could lead to a rapid improvement in the country’s creditworthiness. However, the agency issued a cautionary note, warning that an excessive increase in the minimum wage could undermine the anticipated slowdown in inflation.
The Turkish government, led by Finance Minister Mehmet Simsek, has actively advocated for a rating upgrade, criticizing Moody’s and other rating agencies for lagging behind market assessments of Turkey. Investors’ perception of risk in Turkish debt, measured by credit-default swaps, has improved since Simsek assumed control of the country’s economy last year, implementing market-friendly policies. The central bank, under a new governor, has significantly increased the cost of borrowing by 34 percentage points to 42.5% during the same period.
Before Simsek’s tenure, Turkey faced challenges with inflation spiralling out of control, driven partly by President Recep Tayyip Erdogan’s emphasis on prioritizing growth at any cost. Moody’s recognition of the shift towards a more conventional economic approach reflects positively on the government’s efforts to stabilize the economy.
In September, Fitch Ratings raised Turkey’s credit outlook to stable from negative, scoring the country at B, five notches below investment grade. S&P Global Ratings followed suit in December, elevating the country’s rating outlook to positive while affirming its sovereign rating at B.
The collective praise from major credit rating agencies underscores the global confidence in Turkey’s economic trajectory. Moody’s, in particular, acknowledges the positive impact of a strategic departure from previous economic policies and the implementation of measures aimed at addressing underlying issues.
The Turkish government’s commitment to economic reforms and the central bank’s assertive stance on monetary policy have been instrumental in attracting positive assessments from rating agencies. As Turkey navigates these economic shifts, continued adherence to prudent fiscal measures will likely play a pivotal role in further enhancing the country’s creditworthiness on the international stage.