Turkey’s government bonds move up a notch
20 May 2013 London
Image: Shutterstock
Moody's Investors Service has today upgraded Turkey's government bond ratings by one notch to Baa3 from Ba1, and has assigned a stable outlook.
The reasons for the rating action were recent and expected future improvements in key economic and public finance metrics, as well as progress on structural and institutional reforms that Moody's expects will reduce existing vulnerabilities to shocks to international capital flows over time.
The first driver underlying Moody's decision to upgrade Turkey's sovereign rating to Baa3 is the improvement in the country's economic and fiscal metrics.
Since the beginning of 2009, Turkey's debt burden has fallen by 10 percentage points to a manageable 36 percent of GDP, and Moody's expects this decline to continue in the coming years.
The maturity profile of the central government's debt stock has also lengthened significantly to 4.6 years (and the maturity of its foreign debt stock is now over 9 years), which reduces its vulnerability to interest-rate increases.
Moody’s also indicated that the government's revenue streams have demonstrated resilience in recent years.
“For example, even in the face of contraction in real GDP growth by 4.8 percent in 2009, general government revenues increased by over two percentage points in that year and have remained on an upward trajectory since that time.”
“These improvements, when considered in conjunction with the size, wealth, and diversification of the domestic economy, increase the sovereign's ability to withstand a crystallisation of balance of payment risks over the short to medium term."
The second driver of today's rating action is the progress that the government has made on a wide-ranging institutional reform programme that Moody's believes will gradually erode the country's external vulnerabilities over a longer time horizon.
The government's policy actions are addressing the role that energy plays in driving up the current account deficit, the weak savings rate and the country's overall competitiveness. Taken as a whole, this reform agenda reflects that the government is taking action to address these vulnerabilities.
According to Moody's, upward movement in Turkey's sovereign rating will be constrained by balance-of-payments factors while external imbalances remain large. Upward rating pressure could materialise in the event of structural reductions in these vulnerabilities or further improvements in Turkey's institutional environment or competitiveness.
Reductions in political risk that may emanate from progress on the peace process with the Kurdish insurgency, while credit positive, would not result in upward rating action in the absence of other credit improvements.
Moody's would consider downgrading Turkey's sovereign rating if improvements in the public finances were to be materially reversed. A sudden and sustained halt in foreign capital flows would also exert downward pressure on the rating.
The reasons for the rating action were recent and expected future improvements in key economic and public finance metrics, as well as progress on structural and institutional reforms that Moody's expects will reduce existing vulnerabilities to shocks to international capital flows over time.
The first driver underlying Moody's decision to upgrade Turkey's sovereign rating to Baa3 is the improvement in the country's economic and fiscal metrics.
Since the beginning of 2009, Turkey's debt burden has fallen by 10 percentage points to a manageable 36 percent of GDP, and Moody's expects this decline to continue in the coming years.
The maturity profile of the central government's debt stock has also lengthened significantly to 4.6 years (and the maturity of its foreign debt stock is now over 9 years), which reduces its vulnerability to interest-rate increases.
Moody’s also indicated that the government's revenue streams have demonstrated resilience in recent years.
“For example, even in the face of contraction in real GDP growth by 4.8 percent in 2009, general government revenues increased by over two percentage points in that year and have remained on an upward trajectory since that time.”
“These improvements, when considered in conjunction with the size, wealth, and diversification of the domestic economy, increase the sovereign's ability to withstand a crystallisation of balance of payment risks over the short to medium term."
The second driver of today's rating action is the progress that the government has made on a wide-ranging institutional reform programme that Moody's believes will gradually erode the country's external vulnerabilities over a longer time horizon.
The government's policy actions are addressing the role that energy plays in driving up the current account deficit, the weak savings rate and the country's overall competitiveness. Taken as a whole, this reform agenda reflects that the government is taking action to address these vulnerabilities.
According to Moody's, upward movement in Turkey's sovereign rating will be constrained by balance-of-payments factors while external imbalances remain large. Upward rating pressure could materialise in the event of structural reductions in these vulnerabilities or further improvements in Turkey's institutional environment or competitiveness.
Reductions in political risk that may emanate from progress on the peace process with the Kurdish insurgency, while credit positive, would not result in upward rating action in the absence of other credit improvements.
Moody's would consider downgrading Turkey's sovereign rating if improvements in the public finances were to be materially reversed. A sudden and sustained halt in foreign capital flows would also exert downward pressure on the rating.
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