Fitch Ratings upgraded Turkey's credit rating from 'B2' to 'B+' and changed its outlook from 'stable' to 'positive'.
Key Points
Credit Rating and Outlook Upgrade: Fitch Ratings has raised Turkey's credit rating and shifted its outlook to 'positive', indicating a more favorable view of the country's economic resilience and financial health. This upgrade reflects significant increases in foreign exchange reserves and improved financial indicators, with expectations for further growth in reserves and a reduction in external vulnerabilities.
Economic Forecasts and Policy Stability: The report forecasts a steady growth trajectory for the Turkish economy, expecting a growth rate of 2.8% this year and a potential increase to 3.1% in 2025. It also anticipates that the upcoming local elections in March will not result in significant policy shifts, underlining a period of economic and political stability ahead.
Fitch Ratings released a report today on Turkey, upgrading the country's credit rating and changing the outlook to 'positive'.
The report highlighted a $32 billion increase in Turkey's foreign exchange reserves since last June, reaching $131 billion. However, excluding swaps, the reserve stands at a negative $62 billion, an improvement from $76 billion last June. The report forecasts reserves to reach $148 billion by the end of this year and $159 billion by the end of the next.
The ratio of foreign currency and protected deposits in banks has dropped to 56% of total deposits. The report predicts an average inflation rate of 58% for 2024, with a year-end estimate of 40%, potentially decreasing to 29% in 2025 thanks to credit and tight monetary policies.
The upgrade reflects confidence in Turkey's resilience and effectiveness in economic and external vulnerabilities reduction, including a greater than expected tightening of monetary policy since June 2023. Improved inflation expectations and reduced external liquidity risks were noted, reflecting more favorable external financing conditions, higher reserves, lower foreign exchange-protected deposits, and a shrinking current account deficit.
The positive outlook represents Fitch's expectation for a continued reduction in external vulnerabilities, consistent with a significant inflation decrease and stronger liquidity buffers. The Turkish economy is expected to grow by 2.8% this year, with a potential increase to 3.1% in 2025. The outcome of the local elections in March is not expected to lead to policy changes.
Previously, on September 8, 2023, Fitch confirmed Turkey's credit rating as "B" and improved the outlook from "negative" to "stable" after two years. The next evaluation of Turkey by Fitch is scheduled for September 6.