By JOE PARKINSON And ART PATNAUDE
ISTANBUL—Moody’s Investors Service Inc., citing an “unexpectedly robust recovery,” lifted into positive territory Turkey’s sovereign outlook and raised its growth expectations for the economy, but the ratings agency cautioned that an upgrade would depend on the strengthening of fiscal fundamentals in the run-up to national elections due next year.
Economists, many of whom argue that Turkey’s credit rating is artificially low compared with market pricing of risk, welcomed the move, but were critical. “The increase in the outlook to positive from stable is still a half-hearted move, especially as CDS levels have been pricing in an investment grade for some time now,” said Simon Quijano-Evans, head of emerging-market strategy at Credit Agricole Cheuvreux SA in Vienna. “Nevertheless, any move from ratings agencies ahead of next year’s elections should be taken well by markets.”
The news sent Turkish share prices to a record high, while bonds rose and the lira hit its highest level in more than a year.
Moody’s said Tuesday the outlook change to positive on Turkey’s Baa2 ratings was prompted by “improvements in the country’s economic and fiscal resilience,” and raised Turkey’s economic growth forecast to 6.5% for 2010 and 5% for 2011.
The ratings agency noted, however, that Turkey’s deficit and debt levels have surpassed targets the government set in its plan for 2010-2012, and cautioned that the economy faces significant external vulnerabilities, including its large current-account deficit and its reliance on portfolio investment flows rather than on foreign direct investment for revenue. The country’s current-account deficit, a persistent weak-spot in times of domestic demand-fueled growth, widened on the year to $3.44 billion in July, according to latest official data.
“The challenge now is for Turkey to once again register larger primary surpluses and continue to reduce its debt levels in order to further bolster its resilience to external shocks,” said Moody’s analyst Sarah Carlson.
Turkey suffers from a burgeoning current-account deficit the government forecasts to hit 5% of gross domestic product this year, and from a massive underground economy that makes it difficult for the government to raise revenues to fund the gap, the ratings firms and some economists say. Turkey is vulnerable to a hard landing, they add, should the global economy hit another bump in the road, causing external financing to dry up.
Turkish policy makers have long complained that their country’s sovereign rating is too low. Even after Tuesday’s move the rating is two notches below investment grade by Moody’s and by Standard and Poor’s Corp., and one notch below by Fitch Ratings.
Turkish Finance Minister Mehmet Simsek last month declared that “now is the time” for an upgrade, following data that showed Turkey’s economy grew 10.3% in the second quarter: level with China as the strongest expansion in the G-20 group of leading economies.
Moody’s last rating move on Turkey was Jan. 8, when it upgraded it to Ba2 from Ba3.
https://www.wsj.com/articles/SB10001424052748703726404575533380861803538, OCTOBER 5, 2010
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