S&P Cuts Turkey Credit Rating, Citing Political Uncertainty

Updated on
  • Turkey’s rating lowered one notch to BB with negative outlook
  • President Erdogan declared three-month state of emergency

Turkey in State of Emergency Has Rating Cut to BB

S&P Global Ratings lowered Turkey’s sovereign debt rating, warning that rising political uncertainty after last week’s coup attempt could scare off investment and undermine fiscal management.

S&P cut Turkey’s credit rating one level to BB, two steps below investment grade, and assigned a negative outlook. The move came shortly before President Recep Tayyip Erdogan said he would impose a three-month state of emergency as the government pursues those responsible for the failed coup.

The “polarization of Turkey’s political landscape has further eroded its institutional checks and balances” and could limit the capital inflows needed to maintain the country’s balance of payments, S&P wrote in a statement on Wednesday. Turkey has detained, suspended, fired or stripped the professional accreditation of around 60,000 people, according to Bloomberg calculations. Erdogan has blamed the foiled military intervention on supporters of U.S.-based religious leader Fethullah Gulen.

“Turkey’s economic, fiscal, and debt metrics could deteriorate beyond what we expect, if political uncertainty contributed to further weakening in the investment environment, potentially intensifying balance-of-payment pressures,” the analysts wrote.

Not Logical

Turkey’s 4.25 percent dollar bonds due in 2026 fell 1.3 cent to 96.27 cents on the dollar at 5:05 p.m. in New York. The yield climbed 17 basis points to 4.73 percent. The lira slumped to as low as 3.0973 against the dollar before falling 1.5 percent to 3.0898 on Wednesday.

“S&P should not mess with Turkey,” Erdogan said in a televised address Wednesday adding that economic reforms in the nation would continue uninterrupted.

Deputy Prime Minister Nurettin Canikli had told BloombergHT television on Tuesday that measures will include a “new framework in line with the constitution” for the prosecution of the coup plotters. Erdogan’s chief adviser Cemil Ertem told the state-run Anadolu Agency there’s no plan to impose capital controls, and Deputy Prime Minister Mehmet Simsek said on Twitter that policy steps will be “market friendly.”

The move came after Moody’s Investor’s Service said July 18 that it was reviewing Turkey’s Baa3 rating, the lowest level of investment grade, for a downgrade.

— With assistance by Onur Ant, and Constantine Courcoulas

(Updates with lira trading in fifth paragraph.)
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