Moody’s on March 7 downgraded Turkey's long-term issuer rating to Ba2 from Ba1 and changed its outlook to stable from negative, citing continued erosion of its institutional strength and increased risk of external economic shock.
The rating agency said that the Turkish government seems to be focused on short-term measures, which has hindered fundamental economic reform and effective monetary policy. Turkey's external position has also worsened given its sizable current account deficits, maturing long-term debt and high levels of short-term debt.
On the political front, Moody's said Turkey's involvement in the Syrian conflict and battle against ISIS have cost its tourism industry and threatened its economic stability.
The rating agency said that assigning a stable outlook to the rating balances the erosion of Turkey's institutional strength and its susceptibility to event risks against economic and fiscal strengths from a large and dynamic economy.
Moody's said Turkey's potential growth rate is around 3.5% to 4%. Its debt-to-GDP ratio, estimated at about 28% at end-2017, compares favorably to the median of about 46% for Ba-rated peers.
A sustained narrowing of the current account deficit and reduced geopolitical risks could improve Turkey's issuer rating while lower growth and worsening of the government's fiscal strength could bring downward rating pressure, Moody's said.
