TURKEY’S credit rating has been slashed amid warnings the country’s wrecked finances could cause devastating economic damage across Europe.
By JASON TAYLOR
Saturday, September 24, 2016
Turkey is in economic ruins but the EU is refusing to abandon membership talks
Ratings agency Moody’s announced it is downgrading Turkey’s economy to “junk”, another huge blow to the troubled country which is recovering from a failed military coup against President Tayyip Erdogan and hostile tensions with Russia.
But although its economy is slowing dangerously and GDP per capita – at €13,000 – is less than half the EU average, Brussels said it will continue accession talks and is even considering SPEEDING UP negotiations.
Supporters of President Erdogan celebrate the failed Turkish coup
Moody’s warned that the deterioration in Turkey’s credit rating will continue for the next two to three years as investors are scared off and economic reforms stall.
It said: “Turkey continues to operate in a fragile financial and geopolitical environment and that its external vulnerability has risen, both over the past two years and more recently as a result of unpredictable political developments and volatile investor perception.
“This has credit implications for Turkey given its dependence on foreign capital.
“The risk of a sudden, disruptive reversal in foreign capital flows, a more rapid fall in reserves and, in a worst-case scenario, a balance of payments crisis has increased,” said the rating agency.
Turkey EU negotiationsGETTY
President Erdogan’s dispute with Vladimir Putin is deterring Russian tourists
The European Union’s ties with Turkey are strong and must be deepened
Elmar Brok, the head of the European Parliament’s Foreign Affairs Committee
A string of terror attacks and Turkey’s downing of a Russian warplane last year, which infuriated Moscow, has left the country’s key tourism industry in a dire state.
S&P Global Ratings also placed Turkey’s credit rating in junk territory while Fitch is poised to also downgrade Turkey to junk from a BBB- investment grade.
Economists fear the entry of a country so poor and so big would place unbearable strains on EU finances.
But Elmar Brok, the head of the European Parliament’s Foreign Affairs Committee, refused to be bowed.
He said: “From our geostrategic point of view, it’s more important for Turkey to be on our side than in some else’s camp.
“Our ties are strong and must be deepened.”
The downgrade comes just a week after Federica Mogherini, the EU’s high representative for Foreign Affairs and Security Policy, and Johannes Hahn, commissioner for European Neighborhood Policy and Enlargement Negotiations, visited Ankara to discuss the country’s proposed membership.
Relations between Brussels club and Ankara had soured since the attempted overthrow of President Tayyip Erdogan’s government and the country’s stubborn refusal to back down on its anti-terror laws.
But it now appears the EU, which depends on Ankara to keep a lid on the movement of migrants to in and out of the bloc, is seeking to ease tensions and forge closer ties, regardless of the cost.
The EU, often critical of Turkey’s track record on human rights and rule of law, claimed to be outraged when Ankara dismissed 80,000 people from public duty and arrested many of them over alleged sympathies with the plotters of the military coup. But it has since softened its stance.
Turkey has repeatedly attempted to blackmail Brussels over the escalating migrant crisis by threatening to rip up an agreement to bring the refugee flow under control if it does not get its own way.
The Turkish leader has repeatedly pledged to scrap the controversial deal his country has with Brussels, which allows for the return of all economic migrants from Greece, unless work on granting visa-free travel for Turks is escalated.
Turkey made a landmark deal to stop illegal immigration to Europe via its shores, in return for a staggering £2.5billion, the promise of visa-free travel to much of the bloc plus accelerated talks on EU membership.
Cyprus has always opposed Turkish membership of the EU while other countries have serious concerns about Ankara’s human rights record.
Turkey will ultimately need approval to join from every existing EU member state, apart from Britain. Many have already vowed to hold Yes/No referendums on Turkish membership with support in France, Austria and Germany particularly low.
Erdogan criticises Moody’s decision to cut Turkey’s credit rating to junk as ‘politically motivated’
ISTANBUL- Credit ratings agency Moody’s Investor Service has downgraded Turkey’s sovereign credit rating to non-investment grade citing worries about the rule of law following an attempted coup, risks from external financing and a slowing economy.
The agency, which cut the government’s long-term issuer and senior unsecured bond ratings debt to Ba1 from Baa3, kept Turkey’s outlook as stable, saying its “flexible” $720 billion economy and strong fiscal track record offset the balance-of-payments pressure it faces.
Moody’s decision followed a reduction to two notches below investment grade by S&P Global Ratings in the immediate aftermath of the coup in July. Fitch Ratings is the only major ratings agency that has Turkey as investment grade. Fitch will review its assessment of Turkey at the beginning of 2017.
President Recep Tayyip Erdogan has criticised the rating agencies for being politically motivated. He accused S&P of siding with the coup plotters after its move in July.
The Moody’s rating cut may mean Turkey will have to pay more to borrow money on international markets.
“The drivers of the downgrade are … the increase in the risks related to the country’s sizeable external funding requirements (and) the weakening in previously supportive credit fundamentals, particularly growth and institutional strength,” Moody’s said in an e-mailed statement following the review it initiated after the failed coup.
“The government’s response to the unsuccessful coup attempt raises further concerns regarding the predictability and effectiveness of government policy and the rule of law.”
Deputy Prime Minister Nurettin Canikli said Moody’s had turned a blind eye to reforms and steps the government has taken to boost growth and savings.
“Despite all of the global and regional risks, the Turkish economy’s pace of growth is among the top five economies,” he said in a statement.
Gross domestic product slowed to 3.2 percent growth in the second quarter. Turkey may cut its official target for 4.5 percent GDP growth this year as the impact of the coup attempt takes its toll on the economy.
Moody’s said it expects Turkey’s GDP to grow an average of 2.7 percent in the next three years, compared with 5.5 percent in the first four years of this decade.
Turkey declared a state of emergency after the coup and tens of thousands of civil servants and soldiers suspected of links with the U.S.-based cleric Fethullah Gulen, whom the government accuses of masterminding the coup, have been detained.
“The large-scale suspensions in the civil service raise doubts over the capacity of Turkey’s policy-making institutions to make meaningful further progress in both legislating and implementing the reform program,” Moody’s said.
Measures taken against businesses suspected of ties to the Gulen movement are likely to harm growth because they raise worries about the protection of private investment and the investment climate in general, the ratings agency said.
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