Fitch affirms Turkey’s investment grade rating, outlook stable

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Fitch Ratings has affirmed Turkey’s long-term foreign and local currency Issuer Default Ratings (IDR) at ‘BBB-‘ and ‘BBB’, respectively, with a stable outlook on Friday.

BBB rating indicate that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate but adverse business or economic conditions are more likely to impair this capacity.

The rating agency cited the general government balance sheet is strong, fiscal discipline has been maintained through the electoral period and the commitment to fiscal discipline appears to benefit from consensus across the political spectrum.

However, Fitch said that there is significant uncertainty around the outcome of legislative elections set for Nov. 1, citing opinion polls that expected a similar result at the polls alongside the recent surge in terror attacks in the country as well as the ongoing conflict in Syria.

“Momentum in structural reform has slowed and prospects for revitalisation are uncertain,” it added.

According to Fitch, notwithstanding the slow pace of reform, real GDP growth was 3.1 percent in first half of the year, driven by consumption. “The falling Turkish lira has pulled down consumer confidence, which hit its lowest level since March 2009 in August,” the agency said.

The lira has lost  around 30 percent of its value against the dollar since the end of January.

“External vulnerabilities remain a feature of Turkey’s sovereign credit profile but have not weakened materially since our last review,” it said.

Fitch expects the current account deficit to narrow to 4.6 percent of GDP in the year from 5.8 percent of GDP in 2014, driven by lower oil prices.

The agency said banks in the country are well regulated, profitable and non-performing loans were just 2.9 percent at end-June 2015. “The banking system is consistent with Turkey’s investment grade rating, with a ‘bbb’ on Fitch’s Banking System Indicator.”

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