Moody’s downgrades Turkey: Time for structural reforms?

Moody’s downgrades Turkey, as it is reported on the official website of the international credit rating agency. The agency also gives an outlook on Turkey economic stance. Will Turkey implement the structural reforms?

29 September, AtoZForex – International credit rating agency Moody’s has informed the public that is has downgraded the Turkish government’s long-term credit rating from Baa3 to Ba1.

Moody’s downgrades Turkey

Moreover, the agency has assigned a stable outlook for the Turkish government. This wraps up the review for downgrade that it has initiated earlier this year on July 18 to access the medium-term influence of the Turkey coup in the economic health of the state. Additionally, the review was taking the policymaking institutions, external buffers, and the current challenges into the consideration.

There is a chance that the rating agencies will upgrade Turkey’s outlook to “positive” and the credit rating advancements will follow. However, in order for this to happen, Turkey will need to implement a set of structural reforms within one or two years, according to Mehmet Simsek, the Deputy Prime Minister of Turkey.

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Following on this, Mr. Simsek also stated that Turkey should not get under the influence of emotions in regards to Moody’s downgrade of its sovereign rating, but instead to address its structural problems.

Moody’s outlook on Turkey

The Moody’s downgrade mirrors the increase in the risks related to the country’s large external funding requirements and the downtrend in credit fundamentals, mostly growth, and institutional strength.

Opposing this, the stable Moody’s outlook mirrors the strengths in the credit portfolio, particularly the government’s firm balance sheet, which provides the country with the ability to respond flexibly to shocks in the market. As it was reported by the credit agency, the diminishing trend of the Turkey’s institutional strength has downbeat implications both for the execution of the structural reforms the government identified as vital for balanced and sustainable growth and for the level of growth in the near future.

Furthermore, Moody’s believes that the slow decline in Turkey’s credit profile will continue for the period of next 23 years. As Moody’s downgrades Turkey, Mr. Simsek stated that the state will not shift away from the West due to its economic significance.

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