Turkey: The S&P downgrades the outlook for public debt

The rating agency Standard and Poor’s announced yesterday Friday that it downgraded – from stable to negative – the outlook for the Turkish public debt, citing political and economic uncertainties.

For the time being, the house maintained the country’s rating at B + (“very profitable” position). In general, however, the revision of the outlook for the worse heralds the forthcoming downgrade of the rating in the medium term.

“We can downgrade our assessment if Turkey’s economic policy further undermines the exchange rate of the (new Turkish lira) pound and worsens the outlook for inflation, increasing the risk for the banking system with implications for public debt.” explained S&P in its newsletter.

“This could happen, for example, if the country’s citizens ‘largely’ dollarize ‘their incomes or withdraw them from the financial system, or if the (Turkish) banks’ access to international financing deteriorates,” the rating agency said. .

Defying the classic economic theory, Turkish President Recep Tayyip Erdogan claims that high interest rates are causing price increases. He assures that their reduction stimulates production and exports.

At the behest of the president, the Turkish central bank – an officially independent institution – cut its benchmark interest rate (from 16% to 15%) in November for the third time in two months.

Last week, inflation hit a new three-year high in Turkey, surpassing 21% year-on-year – more than four times the government’s target – plunging the country even further into decline.

Given the possible further reduction of interest rates, possibly even within the month, already another rating agency, Fitch Ratings, also announced the downgrading – and this from stable to negative – of the debt of the Turkish government.