Moody's Investors Service has upgraded Turkey's sovereign credit rating, the first such rating action in more than a decade, citing improvements in governance and economic policies.
The country's sovereign credit rating was raised to “B1" from “B3", with a positive outlook, New York-based Moody's said on Friday.
A “B1” rating, which is “highly speculative”, is four levels below investment grade, according to the ratings scale of Moody's. Non-investment grade makes it more difficult for a country to get access to capital markets and raise funding when it wants to borrow.
This matches S&P Global Ratings' action in May, in which it upgraded Turkey to “B+".
Moody's' decision was driven by improvements in Ankara's policies, “more specifically the decisive and increasingly well-established return to orthodox monetary policy”.
“This is yielding first visible results in terms of reducing Turkey's major macroeconomic imbalances … the positive outlook reflects a balance of risks skewed to the upside,” it said.
“As the credibility and effectiveness of monetary policy rises, macroeconomic stability and strengthened institutions may allow Turkey's underlying credit strengths … reduce the risk of long-lasting inflation shocks in the future.”
Turkey is facing economic challenges, underpinned by chronic inflation. President Recep Tayyip Erdogan installed an economic team to stabilise the economy and control consumer prices last year.
Inflation in the country hit 69.8 per cent in April, above initial projections, the Central Bank of Turkey said in its latest inflation report released in May.
The regulator is more optimistic in the longer term, expecting inflation to go down to 38 per cent by the end of 2024 and further to 14 per cent at the end of 2025, it said.
That silver lining is in line with government data released in May that showed Turkey's economy expanded by 5.7 per cent in the first quarter of 2024, as domestic demand strengthened.
“Inflation and domestic demand have started to moderate, giving us greater confidence that inflationary pressures will ease significantly over the coming months and into 2025,” Moody's said.
The Turkish lira, however, remains one of the worst performers among emerging market currencies tracked by Bloomberg. It is down about 10 per cent so far in 2024.
However, the central bank's move of “rapidly enhancing” the credibility of its monetary policy is helping to restore confidence in the currency, Moody's said.
“Moreover, the tight policy stance is already materially reducing Turkey's elevated external vulnerability.”
Another positive development for Turkey is its removal from the Financial Action Task Force “grey list” of countries that face tighter monitoring for money laundering and terrorism financing last month, as the country has made “significant progress” in its fight against illicit actions in the sector.
The decision is expected to boost investor confidence in Turkey's economy and would have “extremely positive consequences” for its financial sector, Turkey's Vice President Cevdet Yilmaz said on X after the FATF's move.
Moody's cautioned, however, that external vulnerability risks remain “significant” for Turkey. Also, while political risks have declined, they remain a key rating constraint, it said.
It noted that with the next parliamentary and presidential elections in 2028, this gives Ankara time to bring inflation down to previous low levels, “even at the cost of temporarily low economic growth”.
“However, a very sharp slowdown in growth coupled with rapidly rising unemployment could lead to political pressure for an early easing of the monetary policy stance,” Moody's said.
“We expect that the authorities will maintain the tight economic policy stance for some time, so as to ensure that inflation expectations converge to the central bank's target on a sustained basis.”
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Engine: 4.0-litre flat-six
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The specs: McLaren 600LT
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The internal combustion engine is facing a watershed moment – major manufacturer Volvo is to stop producing petroleum-powered vehicles by 2021 and countries in Europe, including the UK, have vowed to ban their sale before 2040. The National takes a look at the story of one of the most successful technologies of the last 100 years and how it has impacted life in the UAE.
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Tips for newlyweds to better manage finances
All couples are unique and have to create a financial blueprint that is most suitable for their relationship, says Vijay Valecha, chief investment officer at Century Financial. He offers his top five tips for couples to better manage their finances.
Discuss your assets and debts: When married, it’s important to understand each other’s personal financial situation. It’s necessary to know upfront what each party brings to the table, as debts and assets affect spending habits and joint loan qualifications. Discussing all aspects of their finances as a couple prevents anyone from being blindsided later.
Decide on the financial/saving goals: Spouses should independently list their top goals and share their lists with one another to shape a joint plan. Writing down clear goals will help them determine how much to save each month, how much to put aside for short-term goals, and how they will reach their long-term financial goals.
Set a budget: A budget can keep the couple be mindful of their income and expenses. With a monthly budget, couples will know exactly how much they can spend in a category each month, how much they have to work with and what spending areas need to be evaluated.
Decide who manages what: When it comes to handling finances, it’s a good idea to decide who manages what. For example, one person might take on the day-to-day bills, while the other tackles long-term investments and retirement plans.
Money date nights: Talking about money should be a healthy, ongoing conversation and couples should not wait for something to go wrong. They should set time aside every month to talk about future financial decisions and see the progress they’ve made together towards accomplishing their goals.
