Moody’s Upgrades Turkey’s Credit Rating by Two Notches for the First Time
On July 18, 2024, the international rating agency Moody’s upgraded Türkiye’s credit rating from B3 to B1 and maintained the outlook as “positive.” This is the first such sharp increase in the country’s history. Factors influencing the rating upgrade:
- Tightening of monetary policy: The Central Bank raised the key interest rate, which helped curb inflation and stabilize the lira.
- Reduction in budget deficit and public debt: The government successfully reduced the level of budget deficit and public debt.
- Improvement in diplomatic relations between Turkey and the USA also played a role.
The firm political stance significantly reduced high external vulnerability, and the positive outlook reflects the upward balance of risks. However, political risk remains a constraint on the rating.
Forecasts and prospects:
With increased confidence and the effectiveness of monetary policy, Türkiye can once again draw attention to its key credit advantages: macroeconomic stability, strengthening institutions, a diversified and competitive economy, as well as strong budget and debt indicators. The credit rating may further increase if the authorities manage to sustainably reduce inflation, decrease dollarization, and strengthen the current account.
Previous forecasts:
- In January, Moody’s maintained Türkiye’s credit rating at B3 and raised the outlook from stable to positive.
- In March, Fitch Ratings upgraded Türkiye’s credit rating from B to B+ and changed the outlook from stable to positive, reflecting the effectiveness of policies implemented since June 2023, including rapid monetary tightening and reduced macroeconomic and external vulnerabilities.
- S&P upgraded Türkiye’s credit rating from B to B+ following the May local elections. Coordination between monetary, fiscal, and income policies is expected to improve due to the effect of external balancing after the elections. An increase in portfolio investment inflows, a reduction in the current account deficit, and a decrease in inflation and dollarization are forecasted over the next two years.
Statement by Treasury and Finance Minister Mehmet Şimşek noted his post on platform X:
“Moody’s has raised our credit rating by two notches for the first time! Moody’s, which upgraded our country’s credit rating after 11 years due to our implemented program, maintained the positive outlook.
Economic balancing, reduction of external financing needs, an increase in international reserves, and the deflation process played a role in the rating upgrade.
Maintaining a positive outlook reflects confidence in our program and indicates potential for further rating upgrades.
We will continue to pursue a rules-based and predictable policy that will enhance the resilience of our economy.”
Impact of the rating upgrade:
For Türkiye, the rating upgrade means lower borrowing costs on international markets and new opportunities. It also makes the country more attractive for economic investments and contributes to the strengthening of the lira.
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