(MENAFN) On Friday, Fitch Ratings, an international credit rating agency, expressed that an enduring enhancement in policy coherence could have a favorable impact on Turkey's credit rating.
In a statement, the agency referenced Turkey's recent local elections, which concluded last month: "Expected post-election fiscal tightening would strengthen the effectiveness of Turkiye’s monetary policy, in the context of weakened transmission channels."
"If sustained, this improvement in policy consistency should support lower inflation, a narrower current account deficit and a recovery in international reserves," it further mentioned.
The agency noted that pre-election public spending played a role in increasing the budget deficit, with the central government budget shortfall estimated to have expanded to 5.2 percent of gross domestic product (GDP) in the first quarter.
Fitch also projected that the non-interest deficit would amount to 2.6 percent of GDP, emphasizing that fiscal policy played a part in bolstering resilient domestic demand during the same period.
"We believe the government will reduce the fiscal deficit in the rest of 2024 by slowing spending growth, especially that which is not related to earthquake reconstruction," it further mentioned, indicating earthquakes in southern Turkey in February 2023.
The agency noted: "Improved policy consistency should support lower inflation, a narrower current account deficit and a recovery in international reserves.
"Inflationary pressures have eased (month-on-month inflation dropped to 3.2 percent in March from 6 percent in January) and we forecast annual inflation to decline to 40 percent by end-2024 from 68.5 percent in March," it continued.
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