ANKARA (Dispatches) – Turkey had its debt rating cut deeper into junk by Moody’s Investors Service, which warned of a possible balance-of-payments crisis in assigning the lowest grade it’s ever given to the country, however Ankara says the picture by the rating agency is not real.
The sovereign credit rating was cut to B2, five levels below investment grade and on par with Egypt, Jamaica and Rwanda. The company kept a negative outlook on the rating, saying fiscal metrics could deteriorate faster than currently expected.
"Turkey’s external vulnerabilities are increasingly likely to crystallize in a balance-of-payments crisis,” London-based Moody’s analysts Sarah Carlson and Yves Lemay said in a report.
Moody’s, which last downgraded Turkey more than a year ago, now ranks it one level lower than S&P Global Ratings and two notches below Fitch Ratings.
However, Turkey disagrees with the rating agency’s reports and authorities have shown little sign of backing away from the unorthodox policies that are compounding an outflow of foreign capital. President Recep Tayyip Erdogan declared Turkey to be under "economic attack” following Fitch’s decision last month to revise the outlook to negative.
Turkey’s economy is on the rise and not dipping at the moment, but "they are downgrading our ratings again,” Erdogan said in Istanbul on Saturday after the Moody’s announcement. "Do what you want to do, your ratings are of no importance.”
Moody’s rationale for its decision included concern about the level of Turkey’s foreign-currency reserves, growing dollarization and the erosion of fiscal buffers, once a source of strength.
The rating company also warned that Turkey’s return to growth after this year’s shock won’t be enough "to offset the impact on the upward debt trajectory of primary deficits of around 2% and an increasing interest burden.”
Turkey was just emerging from a 2018 currency crisis when COVID-19 hit the country early this year, deepening the nation’s vulnerabilities.
With the global health crisis, the economy has contracted nearly 10 percent in the second quarter of the year. Despite a relief in some economic indicators such as an increasing industry output, economists generally agree that Turkey’s gross domestic product (GDP) will shrink more than 1 percent this year.
Turkey is also witnessing important capital flight since the start of the year, more than any other country, Yalcin Karatepe, a scholar and economist from the Ankara University said.
Turkey’s overall unemployment rate rose to 13.4 percent and it edged up in May-July during which a coronavirus lockdown was lifted, according to figures announced by the Turkish Statistical Institute, despite a government ban on layoffs.
Amid the pandemic, the rate of unregistered employment of those working without any social security stood at 31.3 percent.
There’s also the other side of the coin where companies refuse to hire new workforce, fearing a new possible lockdown in major cities, such as Ankara and Istanbul, where there is a resurgence of new confirmed cases.