Turkey saw a cut in its long-term issuer and unsecured debt ratings on Thursday, and a reduction in its rating outlook from ‘stable’ to ‘negative’.
Credit rating agency Moody’s said the fall from Ba1 to Ba2 was due to a loss of institutional strength, delayed reforms and the risk of external shocks worsening the current account deficit.
Although Moody’s talked about Turkey’s “large and dynamic economy and favorable government debt metrics” it also warned that it was increasingly susceptible to the effects of outside shocks.
It also cast doubt on the Turkish government’s estimates of five percent growth, estimating annual growth to be more in the range of 3.5-4 percent.
Ankara’s military campaign in the Afrin region of Syria was also cited as a factor hitting Turkey’s economy. In a briefing the agency claimed:
“In Moody’s view, the geopolitical risk arising from Turkey’s recent engagement in Syria becomes more marked the longer and deeper the engagement goes on.
“Turkey’s involvement in the Syrian conflict and battle against ISIS spilled over into heightened domestic terrorism in recent years, which has been damaging to tourism and hence economic stability (tourism being an important source of export revenues) and confidence.
“While tourism is now reviving strongly, the full normalization of the sector remains vulnerable to political and security risks.”