Change in figures will not affect national rating
Posted by meb at March 11th, 2008
The adoption of new calculation methods and better data collection in painting a more accurate picture of the Turkish economy will not have an effect on the country’s sovereign rating, the Turkey analyst for Standard&Poor’s told the Turkish Daily News yesterday.
Calculated in line with international organizations, especially Eurostat, new figures announced on March 8 showed the national economy is 32 percent larger than previous estimates. The figures elevated the Gross Domestic Product (GDP) in 2006 to YTL 758.3 billion ($608.9 billion) instead of YTL 576 billion. Per capita income for the year 2006 was also revised to $7,500, up from $5,480.
The revisions created hope that international rating agencies might elevate Turkey’s current credit rating. Standard & Poor’s, Moody’s Investors Service and Fitch Ratings all rate Turkish bonds at three levels below investment grade.
But the revision has not got much to do with the current ratings, Farouk Soussa, Turkey analyst for Standard & Poor’s said. “The GDP revision will not materially impact the rating,” he told the TDN. “Constraints on Turkey’s rating has more to do with the fact that Turkey is dependent on international capital. And when you see this kind of international volatility, it may have negative effects.”
Structural dependence:
The Turkish economy suffered from shocks related to this dependency in May 2006 and August 2007, Soussa reminded. “Turkey has a structural dependence on capital inflows, and this is a constraint,” he said. “But this has nothing to do with our view on the quality of the revision. It is sound an in conjunction with international organizations.”
In a separate telephone interview with Bloomberg, Soussa said the relationship between the global environment and liquidity and the Turkish economy is “a real relationship that won’t be affected by numbers.”
Similar comments were echoed by Moody’s on last week. Revisions of Turkey’s GDP data are not key to the country’s rating perspective but structural reform will be crucial to a rating upgrade, Moody’s Vice-President Kristin Lindow told Reuters.
The Moody’s perspective:
“From a rating perspective, we look more at capacity to pay indicators: (ratios of) debt or interest payments to revenues and also external debt to current account receipts, and current account balance to exports,” Lindow said on Wednesday. “Accordingly, the rise in estimated GDP doesn’t change these assessments,” she said.Moody’s has a Ba3 rating on European Union candidate Turkey’s government debt, below investment grade, and a stable outlook.Lindow said however that the government’s progress on structural reforms would be key to an upgrade.
“Key factors to move the rating up relate to concrete progress on structural reform that improves long-term fiscal sustainability,” she said.”The timetable is therefore more up to the government than to us, since right now things seem to be a bit in a holding pattern in some of these areas,” she said, not ruling out however that progress on this front could speed up soon.Lindow also said the agency would be revising its main forecasts in the next few weeks. She saw economic growth at around 4 percent – compared to a market forecast of 4.7 percent – and the current account deficit around $41 billion, just below a market forecast of $41.9 billion.She saw inflation “likely stubborn at 8 to 9 percent”, about double the Central Bank’s target of 4 percent for 2008 and also well above the bank’s mid-point forecast of 5.5 percent.
Source: Turkish Daily News
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