Fitch upgrades Turkey

LONDON (Reuters) – Fitch Ratings raised its outlook on Turkey’s credit ratings to positive from stable yesterday citing solid economic growth, falling government deficit and debt burdens and political stability. Fitch also affirmed its long-term foreign and local currency rating of «BB-» and the short-term rating of «B.» «Turkey’s sovereign creditworthiness continues to improve, underpinned by solid economic growth, falling government deficit and debt burdens and broad political and policy stability,» Nick Eisinger, sovereign credit analyst at Fitch Ratings, said in a statement. Turkey’s benchmark sovereign bond due in 2030 was already higher on the day and remained stable after the news from Fitch was released. It traded up one full point in price to bid 150, driving the yield down to 7.397 percent. «Fitch lifted the outlook. However, given the strong performance of the sovereign debt earlier in the day, the post-news reaction has been muted,» said James Croft, emerging markets debt trader at Commerzbank in London. «Turkey 30s are now trading above 150, a new all-time high, and flows remain very positive,» he added. Fitch said it believes Turkey, whose economy is still vulnerable to external shocks, will continue to press ahead with an economic and political reform agenda in order to maintain its $10 billion loan program with the International Monetary Fund and EU accession negotiations. Falling inflation and a floating exchange rate regime have helped diminish risks to the economy, but strong domestic demand and high oil prices have led to a sharp widening in the current account deficit, Fitch said. «Despite structural changes, the public debt dynamics and financing burden remain geared to interest and exchange rate developments, and while it would take a series of deep and prolonged shocks to place debt dynamics back on an unstable path, such an eventuality cannot be ruled out entirely,» Eisinger said. Fitch said it expects foreign direct investment to cover only 30 percent of the current account shortfall in 2006, keeping external financing a critical factor for the economy. «Signs that the current account deficit is expanding beyond the 6.3 percent of GDP that Fitch forecasts for 2006 (unchanged on 2005 outcomes) would be of particular concern,» the statement said.