Bloomberg News

Deficit Getting Makeover as Eye Kept on Moody’s: Turkey Credit

February 06, 2013

Turkey is changing how it calculates some economic statistics, which may improve data such as the current-account gap, a measure cited by Moody’s Investors Service as a reason for keeping the nation junk rated.

Data on exports, imports and tourism have been “showing our current-account deficit worse than it really is,” Deputy Prime Minister Ali Babacan told BloombergHT television on Jan. 25. New methods will put Turkey’s calculations in line with international standards, cut the shortfall, boost tourism revenue and reduce unemployment, he said.

While Turkish officials say the methods will result in more accurate data, they may raise questions about the reliability of the nation’s statistics, according to Gulay Girgin, chief economist at Ata Investment in Istanbul. Investor concern that the current-account gap was deteriorating sent two-year benchmark note yields surging to 11.5 percent in January last year, prompting policy makers to slow bank lending that was fueling demand for imports. That helped spur the best bond rally among major emerging markets last year.

“The current-account deficit is the single most important issue for rating companies, and a revision at this time could result in question marks, even if the changes are justified,” Girgin said by phone on Jan. 29. “The case for a revision weakens when it’s done while all eyes are focused” on the shortfall, she said.

Credit Rating

Moody’s, which rates Turkey at Ba1, the highest non- investment level, said Jan. 28 that an upgrade would depend on Turkey cutting vulnerabilities stemming from its current-account shortfall, the biggest in the world behind the U.S. in 2011.

Fitch Ratings gave Turkey its first investment-grade rating in 18 years on Nov. 5,, highlighting declining government debt, a strong banking system and favorable economic growth prospects.

“If the new data is acceptable in terms of methodology, then this is a good development,” Marcin Budkiewicz, an emerging-markets strategist at Toronto-Dominion Bank in London, said in e-mailed comments yesterday. “We don’t know how relevant this would be from the rating companies’ point of view. They could rely on their own calculations or on data from international organizations.”

New Methodology

Under new calculations, the current-account deficit will fall from its current level of about 7 percent of gross domestic product, tourism revenue may increase by as much as $5 billion and unemployment will drop by 1 percentage point, Babacan said, without specifying timing for new methodology on calculating the current account.

The revisions will introduce more accurate data for tourism revenue, according to Bora Tamer Yilmaz, an economist at Istanbul-based Halk Yatirim.

“At first it looks fishy,” Yilmaz said in e-mailed comments on Feb. 1. “I find these healthy. Calculation changes for the current-account data could be completed this year. They won’t wait for long.”

Turkey’s current-account deficit probably shrank to 6.9 percent of GDP last year and may be about 7 percent in 2013, according to the median estimate in Bloomberg surveys of economists. That compares with a record of about 10 percent in 2011, according to government data.

Shorter Period

Starting from April 2014, the agency plans to count individuals who have sought work in the past month as jobless, compared with the three-month period used now, according to Birol Aydemir, chairman of the nation’s statistics agency, who spoke at a Jan. 31 conference in Ankara. The change may cut the jobless rate by between 0.9 and 1.4 percentage points, according to an agency presentation during the event. The rate was 9.1 percent in October 2012, the latest month data is available.

Changes in the methodology for calculating labor data are positive and moving “in line with Eurostat,” Vincent Bourgeais, a spokesman for Eurostat in Luxembourg, said in an e- mail yesterday. A detailed assessment of national accounts has not been done, he said.

The Turkish Statistics Agency had nothing new to add to remarks by Aydemir, according to a spokesman who asked not to be identified yesterday, citing policy. The central bank’s press office didn’t return calls from Bloomberg seeking comment.

Jessica Sibado, a spokeswoman at Moody’s in London, didn’t immediately respond to calls and an e-mail seeking comment.

Yields Climb

Yields on two-year local currency securities fell five basis points, or 0.05 percentage point, to 5.73 percent at 5:50 p.m. in Istanbul, lowest since Dec. 4. That extended this year’s drop to 42 basis points, the most among 17 emerging markets tracked by Bloomberg.

Predicting the consequences of a rating change may be little better than flipping a coin, with yields moving in the opposite direction than suggested 47 percent of the time, according to data compiled by Bloomberg in June on 314 upgrades, downgrades and outlook changes going back to 1974. Yields were measured after a month relative to U.S. Treasury debt, the global benchmark.

The extra yield investors demand to hold Turkish debt denominated in dollars rather than U.S. Treasuries was unchanged at 192 today, according to JPMorgan Chase & Co. (JPM:US)’s EMBI Global Index. The premium compared with the emerging-market average of 272.

The lira declined 0.2 percent against the dollar to 1.7647, paring this year’s gain to 1.1 percent. The currency was the world’s worst-performing in 2011 as the current-account deficit swelled, dropping 18 percent.

Default Risk

Five-year credit-default swaps on Turkey were unchanged at 133. That compared with 143 for Russia, 93 for Poland and 170 for South Africa. Lower prices show improving perceptions of a borrower’s creditworthiness. The contracts pay the buyer face value in exchange for the underlying securities or cash if a borrower fails to adhere to its debt agreements.

Turkey took the first step in changing how the data are calculated this year, cutting the weight of food and non- alcoholic beverages in its inflation basket, while raising the weights of transportation, housing, utilities, restaurants and hotels, according to the Ankara-based statistics agency.

Inflation jumped to 7.31 percent in January, more than the 6.77 percent median estimate in a Bloomberg survey, a report showed two days ago.

“The focus should be on correcting methods that fail to comply with international standards, rather than correcting figures,” Ali Ihsan Gelberi, chief of economic research at Turkiye Garanti Bankasi AS, said in e-mailed comments Jan. 29. The changes should be done “together with or with approval from international bodies,” he said. “Otherwise, confidence in the data would fall. The market wouldn’t like that.”

To contact the reporter on this story: Taylan Bilgic in Istanbul at tbilgic2@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net; Gavin Serkin at gserkin@bloomberg.net


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