TURKEY: Risk ratings agency downgrades

03 January 1997

US risk ratings agency Standard & Poor's (S&P) downgraded Turkey's long- term sovereign debt rating to B from B+ on 13 December. The agency cited adverse economic indicators and the government's performance shortfalls for the move.

However, the downgrading does not reflect on short-term borrowing potential, S&P said. The agency maintained its B+ rating for short-term debt. The agency had left the long-term rating at B+ on a previous assessment in July, but put the country on creditwatch.

The economy is growing weaker while the government has failed to introduce necessary budgetary reforms, S&P said. The agency doubted the feasibility of the government's ambitious, balanced 1997 budget, and noted the ratio of the public sector borrowing requirement to gross national product (GNP) is expected to reach around 12 per cent in 1996 from 5 per cent in 1995.

High inflation and interest rates are not expected to moderate in the short-term, the agency said. Financing of budgetary and current account deficits by short-term capital inflows could not last forever, S&P added. While welcoming decisive steps taken towards privatisation by the coalition, the agency said the revenues raised will not materialise before the end of 1997.

S&P also downgraded state Ziraat Bankasi (Agricultural Bank), the private sector Garanti Bankasi, and Ankara municipality to B from B+.

However, Moody's Investors Service, the other major US agency rating Turkey, reportedly sees no justification for a downgrade at present, although it is watching economic developments closely. Moody's lowered Turkey's credit rating to BA3 from BBB- during the economic crisis of June 1994.

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