S&P's change to Turkey's outlook to negative is unsound given the institution's Turkey positive growth forecast, say senior economic officials
ISTANBUL - Senior economy officials have stated that Standard & Poor’s (S&P) decision to revise Republic of Turkey’s rating outlook to negative from stable is not based on sound reasoning.
Officials underline the fact that S&P has pointed to the rising risk of a hard economic landing in Turkey as the main reason for the outlook revision, however this reasoning is not valid considering the agency’s own estimates.
The agency envisages growth rates of 2.4% and 2.0% for the Turkish economy in 2014 and 2015, respectively, while expecting current account deficit as a percentage of GDP to decrease to 2.9% and 2.7%. Those estimates set forth that the agency expects Turkey to achieve a very significant improvement in its external balances, without going through a contraction in growth. The outlook decision despite those estimates is found to be inconsistent.
The officials also state that the agency’s expectation of a deterioration in the asset quality of the banking sector, similar to what happened in 2009, is not valid. They point out the contradiction between the agency’s growth expectations and the expectation of a significant deterioration in the asset quality by stating the fact that the Non-Performing Loan ratio increased marginally to 0.9% on a net basis in 2009, despite the 4.8% contraction in 2009 growth.
The officials also remark that the timing of the outlook change is not right. The EU regulations, which came into effect as of January 2014, stipulate that credit rating agencies are obliged to announce the dates of the credit rating and outlook decisions. In this respect, the agency had announced on December 30, 2013, that those dates for Turkey were May 23 and November 21, 2014. The officials state that the agency’s decision to revise the outlook based on highly debatable reasons and earlier than the pre-announced calendar date is inexplicable.
The officials point to the fact that this outlook decision has been given without taking into consideration the significant measures taken in fiscal, macro-prudential and monetary policy areas and not waiting to see at least the short term implications of those measures is not a fair and healthy approach.
The officials stress upon Turkish economy’s significant resilience towards global fluctuations with its strong public finance and banking sector, and monetary policy framework which has recently become tighter and much more predictable.
Officials also state that Turkey has not renewed its contract with S&P since 2013 and hence the agency preferred to make its analysis without actual on-site visits.
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