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Turkey’s credit outlook upgraded to stable by Fitch

Turkey’s financial standing has received an upgrade as Fitch Ratings revised the nation’s long-term foreign-currency issuer default rating (IDR) outlook to “stable” from “negative,” Bloomberg reported.

However, it maintained the country’s IDR at a “B” level, positioning it alongside Egypt and Mongolia, five tiers below investment grade.

This development comes in response to a series of economic reforms initiated by the government aimed at enhancing macro-financial stability and alleviating balance of payments pressures. Fitch noted that the change to a more consistent policy has facilitated the adjustment.

Over a decade has passed since Turkey received an upgrade from Fitch, having reached an investment-grade rating. However, from 2017 onwards, the nation faced a series of five downgrades, mainly attributed to the economic strategies adopted by President Recep Tayyip Erdoğan that fostered economic growth while compromising the value of the lira and price stability.

In light of a financial crisis marked by a soaring cost of living and a decline in foreign investment, Erdoğan recalibrated his approach after his May re-election. Entrusting the nation’s economic reins to two ex-Wall Street bankers, a transformative shift in the country’s financial landscape commenced.

Finance Minister Mehmet Şimşek, along with Central Bank Governor Hafize Gaye Erkan, spearheaded a revamp of monetary policy, transitioning from a state of loose fiscal approaches and frequent state interventions to a more disciplined economic framework.

Under the watch of Erkan, starting in June, the central bank has increased its primary interest rate to 25 percent in a bid to contain inflation and reinforce financial reserves. This strategy forms a core element of a broader macroeconomic blueprint that seeks a realistic appraisal and adjustment of the nation’s financial dynamics.

The lira has depreciated by approximately 30 percent against the US dollar this year, rendering it the second most underperforming currency in emerging markets. Turkey has a B3 and B rating from Moody’s Investors Service and S&P Global Ratings, respectively.

While the newly adopted policies signal a positive trajectory, Fitch in July cautioned stakeholders, referencing Turkey’s history marked with policy reversals, spontaneous policy relaxation and frequent changes in the central bank’s leadership as potential hazards in the foreseeable future.

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