Moody's trims Turkey

Moody's Investors Service said it downgraded the government of Turkey's long-term foreign- and domestic-currency issuer and the foreign-currency senior unsecured ratings to B3 from B2. The foreign-currency senior unsecured shelf rating was downgraded to (P)B3 from (P)B2.

Concurrently, the foreign-currency backed senior unsecured rating of Hazine Mustesarligi Varlik Kiralama AS, a special purpose vehicle wholly owned by the Republic of Turkey from which the treasury issues sukuk certificates, was also downgraded to B3 from B2. The agency changed the outlook to stable from negative for both issuers.

Moody’s cited declining foreign-currency reserves, mostly due to higher energy prices, which is also driving higher inflation. “The country's current account deficit will likely be close to 6% of GDP this year, more than three times larger than expected before Russia's invasion of Ukraine (Caa3 negative) on Feb. 24, and much higher than last year's deficit of 1.7% of GDP,” the agency said in a press release.

In July, Turkey’s inflation rocketed to 79.6% from 20% in October. Additionally, Turkey’s lira has dropped 30% against the U.S. dollar this year.

“The outlook on the B3 rating is stable, mainly reflecting Moody's view that at this rating level Turkiye's credit challenges are fully incorporated. Despite the expected increase in the budget deficit, the government's debt burden will remain moderate compared to peers at below 40% of GDP (general government level) this year,” the agency said.

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