S&P Global Ratings lowered its outlook on Turkey from “stable” to “negative” on Friday, citing vulnerabilities stemming from the country’s low policy rates, directed lending and regulatory control over foreign currency positions and interest rates, Reuters reported.
Turkey is struggling with rising prices for goods and services, and inflation is expected to remain high leading up to the May 14 presidential and parliamentary elections due to a devastating earthquake in February.
S&P expressed concern over Turkey’s sizable current account deficits, limited usable reserves, high inflation and dependence on sporadic capital inflows, stating that the outlook for the exchange rate is uncertain at best. The ratings agency maintained Turkey’s sovereign credit rating at ‘B.’
While last year’s central government deficit was low, “other broader public sector risks are increasing,” S&P Global said in its statement published on Friday after markets closed in New York.
Reconstruction in the aftermath of a series of earthquakes that shook the country’s southeast in February, killing around 50,000 people, will require internal and external financing of as much as 12% of gross domestic product, S&P said.
“Unrestrained inflation complicates our fiscal, economic and monetary analysis,” S&P wrote.
It also cited concerns about the central bank and treasury’s commitments to compensate depositors for any exchange rate-related losses on foreign currency-linked savings. Those savings are equal to about 9.3% of GDP, S&P said.
According to Turkish daily SOZCU, which obtained a copy of the report, consumer inflation, which was 72.3 percent on average in 2022, is predicted to fall to 44.6 percent in 2023, and to 22.4 percent in 2024, 12.0 percent in 2025, and 10.1 percent in 2025.
S&P predicted that the dollar/TL, which was 18.73 at the end of 2022, would climb to 24.00 at the end of 2023, 27.00 at the end of 2024, 28.00 at the end of 2025, and 29.00 at the end of 2026.
Reuters, Turkish Minute, Bloomberg, SOZCU
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