Published: May 17, 2013
Moody’s upgrades country’s rating, citing improved fiscal position and successful reforms.
Ratings agency Moody’s has upgraded Turkey’s sovereign bond rating from Ba1 to Baa3. The one-notch improvement pushes the country into investment grade. Its outlook has been fixed at stable.
Analysts at Moody’s claim the decision was primarily driven by Turkey’s improved fiscal position. The country’s debt burden has fallen by 10 percentage points since 2009 to a “manageable 36%”. The share of this debt denominated in foreign currency has, between 2003 and 2012, decreased from 46.3% to 27.4%, making it easier to refinance.
The secondary driver is Turkey’s successful process of institutional reform, which Moody’s believes will “gradually erode the country’s external liabilities over a longer term horizon”. Examples cited include a scheme to encourage investment in pensions, which during the first four months of the scheme led to a 12.1% increase in the value of contributions.
It’s not all positive news. A big current-account deficit and high foreign debt as a proportion of foreign reserves make Turkey vulnerable to external shocks. In Moody’s view this is outweighed by the country’s size, wealth, economic diversification and growth prospects.
Moody's decision to award the sovereign investment grade follows Fitch's move to do the same last year.