Moody’s downgraded Turkey rating by one notch to B3 on Friday and gave it a stable outlook, compared to negative previously. This outlook signals that the rating agency does not plan to lower the rating again in the medium term, despite “unorthodox” economic policies.
Moody’s mentions, to justify its decision, “increasing pressures on Turkey’s balance of payments with the risk of a further depletion of foreign currency reserves”. According to the agency, “Turkey’s current account deficit is likely to significantly exceed previous expectations, increasing external financing needs at a time of tightening financial conditions globally.” To fight against the inflation that affects many countries, central banks are raising their key rates, which increases the cost of debt for countries. “The authorities [turques, ndlr] must resort to less and less orthodox measures to try to stabilize the currency and restore foreign exchange reserves”, still worries Moody’s. Less than a year from the presidential election scheduled for June 2023, Turkey is plagued by high inflation, largely explained by the collapse of the Turkish lira, which has lost almost half of its value in one year. Inflation almost stabilized in July, at 79.6% over one year. But it actually reached 176.4% over one year, says the Inflation Research Group (ENAG), made up of independent Turkish economists. “Inflation has reached its highest levels in more than two decades and is expected to rise in the coming months, due to soaring energy and food prices and the central bank’s reluctance to Turkey (CBRT) to raise its key rate,” adds Moody’s.
Moody’s, officially Moody’s Corporation, is a company specializing in risk management solutions and financial analysis for commercial enterprises or government bodies1. Moody’s is also known for its standardized financial ratings of large companies based on risk and investment value. It has a 40% market share in the field of credit estimation worldwide. Its main competitors are Standard & Poor’s (S&P), Fitch Ratings and Dagong.
