Turkey: Markets Down After Moody’s Downgrades Credit Grade To Junk Status

Turkey: Markets Down After Moody’s Downgrades Credit Grade To Junk Status

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BYPANARMENIANSEPTEMBER 27, 2016


Turkish financial markets took a battering Monday, September 26 after ratings agency Moody’s downgraded the country’s credit grade to junk status to account for a series of shocks to the economy that included a string of bombings and an attempted coup, the Associated Press reports.

The Istanbul 100 stock index was down 4.4% at 76,237 points and the national currency, the lira, also took a hit. The dollar was up 0.5% at 2.9822 lira.

The sell-off is largely due to Moody’s statement late Friday that it was cutting Turkey’s government debt rating to Ba1 from Baa3. The downgrade means Moody’s joins Standard & Poor’s in rating Turkey below investment grade. That’s important because it will likely cost the government more to borrow on capital markets and prompt some investment funds to sell Turkish assets.

Turkey’s economy has suffered this year in the face of a string of extremist attacks and uncertainty following the failed coup on July 15 against President Recep Tayyip Erdogan that saw more than 270 people killed.

Tourism, a key component of the economy as well as a substantial foreign-currency earner, has taken a hit — not least because Russian tourists have stayed away in the wake of a diplomatic spat over Turkey’s downing of a Russian warplane last year.

Moody’s said the “upsurge in security-related incidents” and the sanctions imposed by Russia last year following the downing of the jet, have had “an adverse impact” on tourism, which accounts for around 4.4 percent of Turkey’s annual GDP but 15 percent of its foreign capital receipts. In the first half of this year, Moody’s said, tourist arrivals and revenues were down 27.9 percent and 28.2 percent compared with the same period last year.

The agency said that the country “continues to operate in a fragile financial and geopolitical environment and that its external vulnerability has risen, both over the past two years and more recently as a result of unpredictable political developments and volatile investor perception.”

It added that this has “credit implications for Turkey given its dependence on foreign capital.”

Price to pay for going against the western block.

Indika said:

Price to pay for going against the western block.

Click to expand...

Turkey’s economy has suffered this year in the face of a string of extremist attacks
This is the main reason

Bring them on!! Turkish folks can't be colonized no matter what the price is. They have seen all within the last 1000 years. They know that the moment they withdraw from the active struggle they're done. This is the rule of the game, and it's not set any any mortal...

http://en.dagongcredit.com/content/details20_8608.html

Dagong Maintains Turkey’s Sovereign Credit Ratings at BB and BB- with a Negative Outlook
Time：2016-09-23

Dagong Global Credit Rating Co., Ltd. (“Dagong”) has decided to maintain its negative outlook for the local and foreign currency sovereign credit ratings of the Republic of Turkey (“Turkey”), while maintaining ratings at BB and BB- respectively. The Turkish central government’s wider fiscal deficit and rising financing costs caused by a deterioration in the debt repayment environment will reduce the security of repayment sources. Meanwhile, the outstanding external liquidity risk to the banking system will intensify the contingent liabilities risk facing the Turkish government. As a result, government solvency in both domestic and foreign currencies is suppressed under a downward pressure.

The main reasons for maintaining a negative outlook for the sovereign credit ratings of Turkey are described as follows:

1. The heightening political uncertainty and national security risk in Turkey are worsening its political and legal environment. Since the failed attempted military coup in July 2016, the power centralization process of President Erdogan has accelerated. In order to switch the parliamentary system to a presidential one, the ruling Justice and Development Party has taken specific measures including substantially increasing wages, intervening the monetary policy autonomy of the central bank, and so forth. These measures will undermine the balance of economic development and likewise add uncertainties to future economic policies. At the same time, the government’s intensified conflicts with Kurds and the infiltration of Islamic extremists leave Turkey a frequent target of terrorist attacks, leaving its homeland security under substantial threats.

2. Turkey’s political turmoil will curb its economic growth, and structural imbalances will continue to accumulate. In the short term, bolstered by a substantial lift of minimum wage and an easing monetary policy, Turkey’s domestic consumption will maintain a rapid growth. However, domestic political instability will discourage momentum of investments and weaken service exports. For 2016 and 2017, Turkey’s economic growth rate is expected to reduce from 4% to 3.2% and 3.4% respectively. In the long term, following consumption stimulation and other measures taken, the structural imbalance problem of high consumption and a low savings rate will be further exacerbated. Hence, Turkey’s long-term economic growth potential will be compromised.

3. The weakening security of repayment sources will add pressure upon government solvency in domestic currency. The central government’s fiscal balance registered a surplus of 0.5% in 2015. However, in the short term, fiscal expenditures will be escalated to stimulate the economy and fight against terrorism. As a result, the fiscal balance of the central government will shift to a deficit of 0.3% and 0.4% in 2016 and 2017 respectively. Together with a substantial increase in financing costs, the security of repayment sources will be subdued, thus adding downward pressure upon government solvency in local currency.

4. The heightened external liquidity risk will threaten government solvency in foreign currency. Turkey’s external debt burden rate was 54.2% in 2015, when the coverage of gross external debt and short-term debt by international reserves decreased to 27.8% and 107.9% respectively. Despite government debt being relatively small, the banking sector’s external debt, primarily short-term debt, is towering. In the short term, the deterioration of the current account and a substantive atrophy of foreign direct investment will accelerate the depreciation of the Turkish lira and ramp up Turkey's external financing costs. As a result, an external liquidity risk to the banking system is outstanding and the contingent liabilities risk faced by the government will subsequently be heightened. In this case, the debt solvency in foreign currency is weak.

The main reasons for maintaining Turkey's sovereign credit ratings include: fundamentals for Turkey’s economic growth are good, and economic growth could be sustained around 3.5% over the medium-to-long term; in the short term, thanks to the central government’s primary fiscal surplus, Turkey’s debt solvency risks are controllable, and the central government debt burden rate of 2016 and 2017 will rise slightly to 34.3% and 34.9%, subsequently gradually declining after reaching a peak of 35% in 2018. Dagong will continue to monitor changes in each risk element, and take prompt action as required.

BB+ is junk status.

Investors don't always have the same opinion as rating agencies. You can clearly see this in our case. Capitalism at its best.



The reason behind this contrasting development:



Investors simply see the sheer numbers. That's it.

long_ said:

Turkey’s economy has suffered this year in the face of a string of extremist attacks
This is the main reason

Click to expand...

israel all the time like thay so?

Energy minister: Turkish economy resilient despite regional turmoil

"Energy and Natural Resources Minister Berat Albayrak has criticized Moody's' decision to downgrade Turkey's sovereign rating, saying that the efforts made to manipulate the perceptions of Turkey must be ignored. Albayrak attended an opening ceremony with Economy Minister Nihat Zeybekci in Denizli. Critical of the perception manipulations aimed at Turkey by international credit rating agencies, Albayrak said, "We will be on alert in our struggle within the framework of the truth and continue to improve Turkey's role in a time of regional and global fracturing." Stressing that Turkey makes no account of Moody's' downgrade, Albayrak said Turkey consistently progresses in its path in terms of economic and monetary policies.

The minister also said Turkey will maintain its growth performance and strong stance despite perception manipulations, adding that Turkey is aware of the game that is being played."

Moody's move will not harm Turkish economy: Deputy PM

"Indicators have shown Moody's rating cut has had no effect on the Turkish economy, Deputy Prime Minister Nurettin Canikli said on Tuesday.

In an interview with a private channel, Canikli said neither macroeconomic figures nor short-term market moves indicated the credit rating agency's decision had been disruptive for markets.

Canikli stressed no special measures would be put in place to counter potential negative effects of Moody’s credit rating downgrade."