Many analysts have been predicting that Turkey was on the verge of receiving another upgrade from the ratings agencies, and that day has finally come. Moody’s have upgraded Turkey by one level from Ba2 to Ba1 putting them now just one level below investment grade by Moody’s scoring. Turkey is still one level below investment grade with Fitch and two levels below with Standard and Poor. The upgrade triggered a rally on Turkish assets.
Moodys said the upgrade was as a result of significant improvement in Turkey’s public finances. Sarah Carlson, a senior analyst at Moodys told Reuters that Turkey could move up to investment grade if the nation reduced its current account deficit, the central bank increased foreign exchange reserves and private sector external borrowing fell.
“An upgrade to an investment-grade rating will probably be dependent on Turkey becoming more resilient to balance-of- payment shocks, given the already favourable public-finance metrics,” said another spokesperson for Moodys.
So it seems that investment grade is certainly within reach for Turkey. However, Moody’s also cautioned that any material deterioration in public finances would prompt a downward movement in the outlook.
“Although not likely given the country’s improved resilience, Moody’s believes that a sudden and sustained stop in foreign capital flows would exert downward pressure on the ratings,” the rating company said in its report.