S&P revises Turkey’s outlook to negative, downside risks dominate
Posted by meb at November 14th, 2008
The international credit rating agency, Standard & Poor’s (S&P), revised Turkey’s credit outlook to negative from stable, saying the downside risks are more significant.
S&P also said it affirmed its ‘BB-/B’ foreign currency and ‘BB/B’ local currency sovereign credit ratings and its ‘BB+’ transfer and convertibility assessment on Turkey.
“The outlook revision follows a shift in the balance of risks to the downside as external financing conditions remain difficult,” S&P credit analyst David T. Beers said in a written statement late on Thursday.
“Although we expect Turkey’s current account to narrow in 2009 from a projected deficit of 7.3 percent of GDP in 2008, 2009 gross external financing needs will exceed 14 percent of 2009 current account receipts plus usable international reserves. This is one of the higher ratios among emerging market countries.”
The bulk of this external funding requirement stems from banks and corporations, the agency said, adding it expects the high cost of external financing will cause the Turkish private sector to replace a portion of its external funding locally, putting further pressure on the exchange rate, or to contract its own activities to generate cash, which would hamper growth.
The extent of the narrowing of the current account and the slowing of economic growth will depend on the amount of debt the private sector is able to roll over externally, the statement added.
“Our outlook revision signals that a prolonged sudden stop of external financing to Turkey’s private sector could weaken the government’s creditworthiness by requiring direct assistance to affected banks and by depressing government revenues, thus reversing a decade-long decline in the republic’s debt burden,”. Beers said.
“Conversely, government confidence-raising actions that ease external financing conditions–either by tightening policies or by securing official creditor support–could enable the ratings to stabilize at the current levels.”
source: Hurriyet Daily News
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