Moody’s, Standard and Poor’s downgrade Turkey’s sovereign ratings

Nehal Samir
2 Min Read
Turkish Prime Minister Recep Tayyip Erdogan displays an old Turkish Lira banknote at a news conference in Ankara in 2008 (AFP File photo)

In the awake of the Turkish lira crisis, as it suffered its worst one-day loss in a decade after the United States President Donald Trump announced that the US would hike metals tariffs, that lead to losing about 20% of its value against the dollar and after the announcement of the US of doubling steel tariffs on Turkey.

Hence, the crisis of the depreciation of the Turkish lira deepened, leading to that the Standard and Poor’s (S&P), Moody`s downgraded Turkey`s rating.

Furthermore, Moody’s Investors Service downgraded Turkey’s sovereign rating to Ba3 down from Ba2, in addition to that it revised Turkey`s outlook to negative.

Moody`s expected that the current economic conditions in Turkey could lead to increasing the inflation.

For its part, S&P announced that it updated turkey’s long-term foreign currency sovereign credit rating to B+, down from BB- with a stable outlook.

The S&P also expected that the Turkish economy will sink into a recession in 2019.

Meanwhile, Moody`s stated that the key driver for this downgrade is the continuing weakening of Turkey’s public institutions and the related reduction in the predictability of Turkish policy making.

“That weakening is exemplified by heightened concerns over the independence of the central bank, and by the lack of a clear and credible plan to address the underlying causes of the recent financial distress, notwithstanding recent statements by the government,” according to Moody`s.

Moody`s warned  that the tighter financial conditions and weaker exchange rate, associated with high and rising external financing risks, are likely to fuel inflation further and undermine growth, and the risk of a balance of payments crisis continues to rise.

Meanwhile, S&P also warned that the weaker lira is putting pressure on the highly indebted corporations and raised the funding risk for Turkey’s banks.

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