Bloomberg News

Turkey’s Current Account Gap May Pressure Rating, Moody’s Says

June 06, 2011

June 6 (Bloomberg) -- Turkey’s credit rating may come under pressure should it have difficulty financing the current account gap, Moody’s Investors Service said, urging the government to tighten the budget after this week’s parliamentary elections.

While the country has made progress to improve its fiscal position, “Turkey’s significant external vulnerabilities, such as its large current account deficit and its reliance on portfolio investment flows to fund the current account deficit, make very robust fiscal fundamentals even more important,” Moody’s said in an e-mailed response to questions.

“Turkey’s rating could come under downward pressure if the large and growing current account deficit becomes more difficult to finance,” Moody’s analyst Sarah Carlson said. “The rapid deterioration in the current account deficit is a key risk factor in Turkey at the moment.”

The lira has declined 1.9 percent this year, the most among major emerging market currencies, as concern grew that Turkey may struggle to contain the deficit. The gap, forecast by the government to widen to $39.3 billion, or 5.4 percent of gross domestic product this year, reached $60.5 billion in the 12 months through March as an economic expansion boosted demand for imports.

“The challenge now is for Turkey to register larger primary surpluses, accumulate a larger stock of foreign exchange reserves, and further reduce its debt levels in order to increase its resilience to external shocks,” Carlson said.

Prime Minister Recep Tayyip Erdogan is seeking re-election on June 12. Opinion polls show his Justice and Development Party will probably win enough votes to keep its legislative majority in parliament. The government is ready to respond should the central bank fail in its bid to tame “very, very strong” domestic demand and slow the widening of the current-account deficit, Finance Minister Mehmet Simsek said on May 16.

Moody’s rates Turkish credit Ba2, two notches below investment grade, with a positive outlook. Ba2 is the risk- assessor’s second-highest non-investment grade. Standard & Poor’s rates the country an equivalent BB, also with a positive outlook, and Fitch Ratings ranks Turkey as BB+, just one notch below investment grade.

--Editors: Mark Bentley, Aydan Eksin

To contact the reporter on this story: Selcuk Gokoluk in Istanbul at

To contact the editor responsible for this story: Gavin Serkin at

The Good Business Issue
blog comments powered by Disqus