Standard & Poor's revises Turkey outlook to stable from negative

"The stable outlook on Turkey balances the improvement in the republic's external financing prospects and underlying fundamentals against its vulnerability to financing shocks," S&P said in a statement.

 

"If the government continues to reduce the economy's vulnerability to external financing shocks through continued reform and fiscal consolidation, the ratings on Turkey could improve," the agency added.

 

Wednesday's verdict eased months of political uncertainty, which has battered Turkey's financial markets on fears that the democratically elected party would be closed down, halting economic and political reforms needed for Turkey to join the European Union.

 

"The resulting improved prospects for policy continuity and political stability will likely bolster investor confidence, widening the sources for the financing of Turkey's large current account deficit," S&P said

 

Turkey's current account registered a deficit of 5.7 percent of GDP and 25 percent of current account receipts in 2007. Although net inward foreign direct investment offset 53 percent of the deficit, with portfolio equity making up for another 9.0 percent, external borrowing remained substantial.

 

MOODY'S HOLDS STABLE

The decision "removes the near-term risk of a chaotic political scene," Moody's Senior Vice President Kristin Lindow said in a research note on Friday.

 

"Still, the challenges that the country faced when the case was filed in March have not changed, so the outlook on the government's Ba3 debt ratings remains stable," Lindow added.

 

She cited the large current account deficit, relatively compressed public debt burden, and privatization as some of the areas where reforms had largely stalled, for domestic reasons such as last year's elections as well as unfavorable external circumstances. She said the catch-up will be that much harder because of the delays.

 

"Political uncertainty and even volatility have obviously not disappeared in Turkey, with negative financial and economic consequences always a risk," said Lindow. "For these reasons, the current ratings and stable outlook, which has a roughly 12- to 18-month time horizon, appropriately balance the gains in credit strength achieved in recent years against the significant challenges that continue to face the country."

 

"As is evident by both the global economic backdrop and the local political scene, the road will not be entirely smooth for the government regardless of their narrow win in the Constitutional Court this week," said Lindow.
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