Scope Ratings reviews its ratings either yearly, or at least every six months in the case of sovereigns, sub-sovereigns and supranational organisations. Scope performs monitoring reviews to determine whether outstanding ratings remain proportionate. Monitoring reviews are conducted either by performing a portfolio review in terms of the applicable methodology/ies, latest developments, and the rated entity’s financial and operational aspects relative to similarly-rated peers, or through targeted reviews on an individual credit. Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the Republic of Turkey (B/Negative (long-term foreign-currency ratings), B+/Negative (long-term local-currency ratings), S-4/Stable (short-term ratings)) on 24 March 2021, incorporating the update from the sovereign methodology. The review resulted in no action on the assigned ratings. This monitoring note does not constitute a rating action nor does it indicate the likelihood of a credit rating action in the short term. The latest information on the credit ratings in this monitoring note along with the associated ratings history can be found on www.scoperatings.com.

Key rating factors

Turkey’s long-term sovereign ratings are challenged by: i) long-run deterioration in the sovereign’s capacity to service debt outstanding especially in foreign currency, due to structural depletion of Turkey’s foreign-currency reserve stock; ii) severe external-sector vulnerabilities, including structural current-account deficits, significant exposures to lira depreciation and periods of capital outflow; and iii) monetary and fiscal policies that are inconsistent with the assurance of the Turkish economy’s long-run sustainability.

On 20 March, President Recep Tayyip Erdoğan dismissed central-bank governor Naci Ağbal, signalling a sudden change in leadership at the monetary authority, after a market-friendly, above-expectation tightening of rates on 18 March, underlining Erdoğan’s wish for looser monetary policy in support of high growth. Under new Governor Şahap Kavcıoğlu, a weaker lira, rising inflation and elevated credit growth are unlikely to be met with the same proactiveness in the central bank response near term and, instead, Turkey’s significant macroeconomic imbalances could return to being exacerbated rather than counteracted by central bank policies.

The credit strengths of Turkey include: i) still-comparatively-moderate levels of central government debt despite sharp increases during recent years, ii) a well-capitalised and resilient banking system able to provide significant liquidity to the sovereign, and iii) a lesser sensitivity of Turkey’s local-currency-denominated government debt to economic vulnerabilities linked to inadequate foreign-currency reserves, risks from currency depreciation and exits of foreign investors, as well as from elevated rates of inflation. In addition, a large, diversified economy and high medium-run growth potential remain credit strengths.

For the updated scorecards accompanying this review, click here.

The methodology applicable for the reviewed rating(s) and/or rating Outlook(s) (Rating Methodology: Sovereign Ratings, 9 October 2020) is available on https://www.scoperatings.com/#!methodology/list.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Dennis Shen, Director

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