Turkey Keeps Fitch Investment Grade; Outlook Cut to Negative

  • Turkey maintains BBB- rating after a failed coup raises risks
  • Political uncertainty expected to impact economic performance

Turkey kept its investment grade credit ranking at Fitch Ratings, while the outlook was cut to negative from stable, as a failed coup attempt last month increased the political risks in the country.

Fitch rates Turkey BBB-, the lowest investment grade. It said the outlook is dimmed as growth may slow amid the political turmoil. The rating is in line with Moody’s Investors Service, which has placed it on review for a possible downgrade while it assesses the impact of the military takeover attempt. S&P Global Ratings lowered Turkey one level to BB, two steps below investment grade, on July 20.

“The implications for checks and balances, which in Fitch’s opinion have eroded in recent years, are unclear, as is the potential for further disruption from those behind the coup attempt,” Fitch said in a statement. “Political uncertainty is expected to impact economic performance and poses risks to economic policy.”

A section of Turkey’s military on July 15 attempted to seize power from the democratically elected government of Prime Minister Binali Yildirim. The government has since purged followers of U.S.-based cleric Fethullah Gulen from state jobs, saying the cleric and his supporters planned and executed the coup. More than 80,000 members of the military, judiciary and other state institutions have so far been suspended or fired.

Fitch pointed out that while the country faces large funding needs, capital flows have been “resilient” with only a marginal increase in borrowing costs since the attempted coup. The rating company does not expect the fiscal balance to weaken following the turmoil.

The decision by Fitch is important because some large pension funds and insurance companies have policies preventing them from investing in countries with fewer than two investment grades from the three major rating companies.

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