Turkey’s Credit Rating Upgraded by Fitch Amid Improved Fiscal Policy

Reuters

Credit rating agency Fitch has upgraded Turkey’s long-term foreign currency Issuer Default Rating to “BB-” from “B+”, citing improved fiscal policy and enhanced external buffers.

Turkey’s Economic Reforms

Turkey has been implementing a tight monetary and fiscal policy since last year to tackle rising inflation, which peaked at 75% in May. Annual inflation fell to 51.97% in August, driven by higher rates compared to last year and lower food prices.

Central Bank’s Stance on Monetary Policy

However, the central bank has claimed that it will maintain its monetary policy tight until inflation is in line with its targets. In its medium-term economic program released on 5 September, the government predicted that inflation would fall to 41.5% in 2024, 17.5% in 2025, and 9.7% by 2026.

Fitch’s Outlook

Fitch stated that tighter monetary policies, proposed budget cuts, and wage adjustments will lead to lower inflation and current account deficits, ultimately helping to maintain better foreign exchange reserves. However, the rating agency noted that “the risk of a policy reversal remains present … given Turkiye’s recent history, the strong belief, at the highest political levels, in low interest rates, and the opposition possible by vested interests.”

Rating Agency Upgrades

Fitch, which has upgraded Turkey’s credit rating for the second time this year, has also changed its outlook from “positive” to “stable”. In July, rating agency Moody’s upgraded Turkey’s rating to “B1” from “B3,” citing improvements in governance and a tougher stance on monetary policy. In May, the credit rating agency S&P also upgraded Turkey’s ratings to “B+” from “B,” saying that the coherence between monetary, fiscal and income policy is set to improve, amid external rebalancing.