Turkey’s credit rating has been upgraded by Moody’s, marking a significant shift in the country’s economic policies. While still on par with Jordan and Bangladesh, this move denotes a change in direction from the economic policies pursued under Recep Tayyip Erdoğan.
This upgrade represents a milestone in Turkey’s efforts to re-adopt traditional economic policies. The rating agency Moody’s Ratings has raised Turkey’s credit rating for the first time in over a decade.
The rating was raised two notches, from B3 to B1, with a positive outlook. Turkey remains four notches below investment grade, comparable to Jordan and Bangladesh. This upgrade follows similar moves from other rating agencies like S&P Global Ratings and Fitch Ratings, spurred by Turkey’s return to conventional policies. These changes might lead to a turnaround in inflation and a significant increase in the central bank’s foreign exchange reserves.
Finance Minister Mehmet Şimşek yielded to conventional policies
“The key reason for the upgrade to B1 is improvement in governance, particularly the decisive and increasingly evident return to an orthodox monetary policy,” stated Moody’s. “This is leading to initial tangible outcomes in diminishing Turkey’s substantial macroeconomic imbalances.”
Rating agency Moody’s sees a turnaround in the economic policies of President Recep Tayyip Erdoğan and Finance Minister Mehmet Şimşek. Reuters / Andrew Kelly
Turkey has experienced some of the highest rates of price increases globally in recent years, resulting from President Recep Tayyip Erdogan‘s departure from traditional economic policies. He promoted growth through methods like cheap credit, minimum wage increases, and loose government financing. After last year’s elections, an economic team under Finance Minister Mehmet Şimşek sought to restore stability by raising the central bank’s benchmark interest rate from 8.5 percent to 50 percent and implementing stricter fiscal policies.
Positive outlook
“This is fantastic news for Turkey. It’s uncommon to receive a double upgrade, but it indicates that Moody’s has been slow to recognize the changes and has had to catch up with Fitch and S&P,” Tim Ash, an emerging markets strategist at RBC BlueBay Asset Management, told news agency “Bloomberg“. This demonstrates the impact of the Şimşek reforms.”
»“Thanks to the program we implemented, Moody’s, which upgraded our country’s credit rating following eleven years, has maintained the outlook as positive”
Mehmet Simsek
Finance Minister
Moody’s upgraded the outlook for Turkey’s creditworthiness from stable to positive in January, citing a “decisive shift” in the authorities’ economic policy. S&P raised the country’s rating one notch from B to B+, with a positive outlook. Fitch also upgraded the country in March one notch from B to B+ with a positive outlook.
“Thanks to the program we implemented, Moody’s, which upgraded our country’s credit rating following 11 years, has maintained the outlook as positive,” Şimşek stated on the online platform X, pointing out that this positive outlook suggests further potential upgrades to the rating.
Inflation anticipated to decline
Moody’s predicts a significant decline in consumer price inflation to below 45 percent by December, aided by a slowdown in domestic demand and an appreciation of the real exchange rate. The decision to not repeat the mid-year minimum wage increases from July 2023 and 2022 should continue to support disinflation in the future.
Moody’s expects inflation to slow to around 30 percent by 2025, while the current account deficit will remain at 2.4 percent of GDP this year. BIP is expected to be below two percent of GDP in 2025, following reaching a new high of five percent in 2022.
Moody’s noted that while external vulnerabilities and political risks have decreased, they still impact the rating. (Bloomberg)
Turkey’s Credit Rating Upgraded by Moody’s: A Sign of Economic Turnaround?
The country is still on a par with Jordan and Bangladesh. But Moody’s rating marks a reversal in Recep Tayyip Erdoğan’s economic policy.
It is a milestone in Turkey’s efforts to return to an orthodox economic policy: The Rating agency Moody’s Ratings has raised the country’s credit rating for the first time in more than a decade.
The rating was raised by two notches from B3 to B1 – and with a positive outlook. Turkey remains four notches below investment grade, on a par with Jordan and Bangladesh. The move follows upgrades by the US rating agencies S&P Global Ratings and Fitch Ratings, as Turkey’s return to conventional policies might lead to a turnaround in Inflation and a rapid increase in the central bank’s foreign exchange reserves.
Finance Minister Mehmet Şimşek gave in
“The main reason for the upgrade to B1 is improvements in governance, in particular the decisive and increasingly established return to an orthodox monetary policy,” Moody’s said. “This is leading to the first visible results in reducing Turkey’s large macroeconomic imbalances.”
Rating agency Moody’s sees a turnaround in the economic policies of President Recep Tayyip Erdoğan and Finance Minister Mehmet Şimşek. Reuters / Andrew Kelly
Turkey has experienced some of the fastest price increases in the world in recent years, as President Recep Tayyip Erdogan steered away from traditional economic policies and promoted growth through cheap credit, minimum wage increases and loose government financing. After last year’s elections, an economic team led by Finance Minister Mehmet Şimşek tried to restore stability by raising the central bank’s benchmark interest rate from 8.5 percent to 50 percent and implementing tighter fiscal policies.
Positive outlook
“Boom – great news for Turkey. It’s rare to get a double upgrade, but it shows how much Moody’s has been behind the curve and that they have had to catch up with Fitch and S&P,” Tim Ash, an emerging markets strategist at RBC BlueBay Asset Management, told news agency “Bloomberg“This shows the impact of the Şimşek reforms.”
»“Thanks to the program we implemented, Moody’s, which upgraded our country’s credit rating following eleven years, has maintained the outlook as positive”
Mehmet Simsek
Finance Minister
Moody’s revised the outlook for Turkey’s creditworthiness from stable to positive in January, citing a “decisive change” in the authorities’ economic policy. S&P raised the country’s rating by one notch from B to B+, with a positive outlook. Fitch also upgraded the country in March by one notch from B to B+ with a positive outlook.
“Thanks to the program we implemented, Moody’s, which upgraded our country’s credit rating following 11 years, has maintained the outlook as positive,” Şimşek said on the online platform X, adding that the positive outlook indicates further potential upgrades in the rating.
Inflation should fall
Moody’s expects consumer price inflation to fall significantly to below 45 percent by December, supported by a slowdown in domestic demand and an appreciation of the real exchange rate. The fact that the mid-year minimum wage increases of July 2023 and 2022 will not be repeated should continue to support disinflation going forward.
Moody’s expects inflation to slow to around 30 percent by 2025, while the current account deficit will remain at 2.4 percent of GDP this year. BIP and is expected to be below two percent of GDP in 2025, following reaching a new high of five percent in 2022.
Moody’s said that while external vulnerabilities and political risks have declined, they still weigh on the rating. (Bloomberg)
