Fitch raised Turkey’s grade for investment

Fitch Ratings agency has raised Turkey’s investment grade today, a move long coveted by Erdogan’s Ankara government, citing underlying strengths and an easing in near-term risks for the Turkish economy.

Ankara / Istanbul – Among those strengths, Fitch highlighted a moderate and declining government debt burden, a sound banking system, favourable medium-term growth prospects and a relatively wealthy and diverse economy for the move.

The credit ratings agency highlighted a moderate and declining government debt burden, a sound banking system, favourable medium-term growth prospects and a relatively wealthy and diverse economy.

The move triggered a rally in Turkish financial markets, with the lira firming against the dollar while the benchmark bond yield fell to 6.86 % from 6.98 %.

Fitch’s move does not mean that Turkey will automatically be included in benchmark investment grade bond indexes because other agencies would have to move as well.

But the decision will be welcomed by Prime Minister Tayyip Erdogan, who has presided over the transformation of Turkey’s economy in the last decade and who has long been critical of the ratings agencies’ failure to award investment grade to Turkey.

Finance Minister Mehmet Simsek said the upgrade would have a positive impact on risk perception and boost capital inflows and the country’s growth performance.

Fitch’s decision was likely to boost the Turkish economy, Europe’s fastest growing last year but slowing sharply this year, making the country more attractive to foreign investors.

“The upgrade to investment grade reflects a combination of an easing in near-term macro-financial risks as the economy heads for a soft landing,” Fitch said.

“Fitch believes that the Turkish economy is on track to return to a sustainable growth rate, having narrowed the current account deficit and lowered inflation after overheating in 2011,” it said.

Turkey’s Issuer Default Rating also upgraded

Specifically, Fitch upgraded Turkey’s long-term foreign currency Issuer Default Rating (IDR) to ‘BBB-‘ from ‘BB+’ and the Long-term local currency IDR to ‘BBB’ from ‘BB+’. The outlooks on the long-term ratings are stable.

Manik Narain, emerging market strategist at UBS in London, said many investors already treated Turkey as a quasi-investment grade bet.

“But at the end of the day this will create actual investment inflows and lower borrowing costs,” Narain said.

Moody’s, which upgraded Turkey to Ba1 in June, said last week a history of political friction between secular and religious elements of Turkish society remains a credit challenge for the country.

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