(MENAFN- AzerNews) By News Centre
Turkiye's new economic policy received full marks from the
international credit rating agency Fitch Ratings, which recently
raised Turkey's credit rating. The agency stated that the policy
change not only reduces the macroeconomic financial stability risk
in Turkiye but also provides an improvement in external financing
conditions.
Fitch Ratings' Senior Director and Turkiye Analyst Erich Arispe
Morales said that they have increased confidence that Turkiye's
current economic policy axis is more durable and that the policies
will be sustained.
Erich Arispe Morales answered the questions of an AA reporter
after Fitch Ratings increased Turkiye's credit rating from 'B' to
'B+' and its rating outlook from "stable" to "positive" last
week.
Stating that Fitch Ratings confirmed Turkiye's credit rating as
'B' in September last year and increased the rating outlook from
"negative" to "stable", Morales said, "This decision is consistent
with the change in Turkiye's economic policies in reducing the risk
of macroeconomic and financial instability."
Morales noted that the consistency in Turkiye's macroeconomic
policies has yielded some important results, and that the first of
these is seen in the change in external financing conditions.
He explained that the market was not only opened to the public,
but also banks and companies had access to external financing after
the policy change. Morales emphasized that there were pleasing
developments for the Turkish economy, including the decline in
Turkiye's 5-year credit risk premium.
"We also believe that current policies are consistent in
reducing Turkiye's current account deficit. In May 2023, the
current account deficit, which was at the level of 60 billion
dollars on a 12-month basis, started to decrease and closed the
year at the level of 45 billion dollars. Looking forward, the
current account deficit in the country will be reduced in 2024. We
expect it to fall to approximately 2.6 percent of Gross Domestic
Product (GDP) and to 2.2 percent in 2025. This rate is below the
projected average for other countries with similar ratings to
Turkiye," Morales said.
Pointing out that there has been an improvement in Turkiye's
international reserve levels, Morales said, "As we foresee in our
base scenario, if Turkiye's economic policies are continued in this
way, we will see further improvement at this point (in
international reserves). If the policies are maintained, the
international reserve coverage will increase to 4.5 months in 2025.
We foresee this. This means that Turkiye's reserve coverage ratio
will exceed the level predicted for countries in the B grade
category."
Morales pointed out that there have been important developments
regarding exchange rate protected deposits and said that the first
of these was the decrease in the size of exchange rate protected
deposits, which was 130 billion dollars at the end of August 2023,
to 74 billion dollars. He emphasised that it is very important that
this decrease occur without causing a significant increase in
financial dollarization.
"It is important not only to reduce the contingent liability,
but also to ensure that the gradual elimination of this mechanism
does not lead to an increase in financial dollarization.
Considering all these developments, we can say that our confidence
that the policy change will be sustained 6 months after our
evaluation in September has increased. The developments regarding
reducing foreign currency protected deposits, reducing the current
account deficit and easing inflation expectations without
increasing dollarization confirm our assessment that we announced
on Friday last week," , Morales said.
Erich Arispe Morales pointed out that various factors, such as
"developments in the global economy, growth expectations, monetary
policy and political developments" are effective in foreign
investors' decisions about Turkiye.
"There is a development that we noticed that the policy change
not only reduced the macroeconomic financial stability risk in
Turkiye, but it has also resulted in an improvement in external
financing conditions, which is very important. In this context,
assessments of the reliability, durability, and consistency of the
policy framework have played and will continue to play an important
role in foreign investor expectations," he said.
Morales pointed out that although inflation is expected to
decline significantly in the next few years, it remains the main
policy challenge for the Turkish economy.
"The inflation we saw in the first two months of this year
reflected some policy measures implemented since the end of last
year. One of these was the 49 percent increase in the minimum wage
at the beginning of the year. This gave some impetus to domestic
demand and household consumption. In addition, public expenditures
were reduced. We saw that credit card usage increased. We are aware
that these factors led to increased inflationary pressures in the
first two months of the year,"
Morales, however, stated that fiscal money, credit, and income
policies are consistent with the effort to reduce inflation and
that they maintain their expectations that the CBRT will have a
monthly inflation path approaching the level predicted by the end
of this year.
On the other hand, he said that Fitch Ratings' inflation
expectation is at 40 percent, despite the CBRT's 36 percent
inflation projection.
"We expect inflation to be at an average of 58 percent this year
and decrease to 29 percent. However, inflation is only for this
year and the future. It continues to be a fundamental policy issue
for Turkiye, not for the next year, but in the medium term," he
said.
Morales emphasised that indicators of steady progress in
Turkiye's fight against inflation and increasing confidence that
the rebalancing process will lead to a sustainable decline in
inflation are among the factors that will increase the rating.
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