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Moody’s: Turkey’s fragility risk increases as the Lira loses value

Credit rating agency Moody’s latest report announced that “Turkey’s external fragility” will increase from “High” to “High (+)”. Moody’s Investors Service downgraded Turkey’s long-term issuer ratings to Ba3 from Ba2 and changed its rating outlook to negative on 17th August 2018.

Moody’s report mentioned that the Turkish Lira was negatively affected when Germany warned its citizens against visiting Turkey after the online criticism of Turkish President Recep Tayyip Erdogan. Moody also warned that possible tension with the US could result in the loss of Lira.

Moody’s stated that Turkey’s economy needs foreign currency from abroad, thus, the degree of fragility against the risks of the country increased by one digit. Moody’s justified this assessment stating that the high-level re-financing that needs to be provided from abroad creates vulnerability in the Turkish market.

“Turkey’s foreign currency goods remain modest compared to the foreign currency obligations, and this situation increases external vulnerabilities” Moody’s reported.

“Consumption and investment are falling”

Moody’s estimates that the current account deficit will decline to 1.2 percent on average this year, along with the decline in consumption and investments. Moody’s warned that, although the need for external financing decreases, it is noteworthy that the obligations that need to be refinanced are considerable.

“Travel warnings hardening”

Moody’s stressed that since October 2018, the tense relationship between Turkey and the US was getting calmer, but as Turkey remained determined to buy S-400 missiles from Russian, the relations between Washington and Ankara were getting strained again.

“One or both of these diplomatic disagreements should be more heated and the initiation of new sanctions to narrow trade and investment may play a role in the loss of TL again,” Moody’s report warned about bad scenarios for the Turkish economy.

Turkey’s economy will continue to shrink, S&P estimates

 

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