In its annual report on Turkey, Moody's Investors Service says the country's ratings outlooks are now stable to positive, reflecting ongoing recovery and socio-economic reforms that have improved debt sustainability trends in spite of still-high public debt and debt service levels.
The country ceiling for foreign currency debt is B1 with a stable outlook while the ceiling for foreign currency bank deposits and the Turkish government's lira-denominated debt rating are both B3 with positive outlooks.
In Moody's opinion, the events of the past year demonstrate both the benefits and the challenges that come with Turkey's strategic geo-political position. On the one hand, Turkey hopes to eventually become a member of the European Union (EU), a likelihood enhanced by the passage of critical political reforms in recent years, although a longer track record on implementation and the division of Cyprus remain obstacles to the start of formal negotiations.
On the other hand, Turkey has been caught up in the backlash after the US-led invasion of Iraq, most recently in the form of terrorist attacks in Istanbul. The deadly bombings are unlikely to have sovereign ratings repercussions but could impair investment and tourism in the short to medium term.
Moody's report points out that structural reforms undertaken by the Turkish authorities in the past five years have aimed at permanently improving economic stability and productive competitiveness. Policymakers have specifically targeted the sources of high inflation and erratic growth such as large fiscal deficits, inefficient and underregulated financial and product markets, and trade and market protections. Their efforts have met with an unprecedented degree of success, as measured by strengthened public finances, the increased openness of the economy to trade, lower inflation and interest rates, and the improved resilience of the banking system.
Moody's believes that the currently positive economic situation should encourage continued reform compliance on the part of the Turkish authorities, provided that they do not grow overly complacent after what one assumes will be a favorable outcome for the ruling party in the March 2004 local elections. It will be important for policymakers to recognize that a stable, faster-growing economy cannot yet be taken for granted, probably for many more years when or until the EU convergence process is well underway. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
