ECONOMY

S&P affirms Turkey’s BB- rating

LONDON (Reuters) – Standard & Poor’s affirmed Turkey’s BB- long-term sovereign credit rating on Thursday, citing prudent macroeconomic policies and fiscal discipline. S&P added that Turkey was still vulnerable to swings in investor confidence, primarily because of its large external imbalances. «The ratings on Turkey are supported by the government’s commitment to prudent macroeconomic policies. Since 2003, the government has consistently achieved its ambitious year-end primary surplus target of 6.5 percent of gross domestic product,» Farouk Soussa, sovereign credit analyst at S&P said in a statement. «Such fiscal discipline has bolstered confidence in government policy, reduced the debt burden substantially, with net government debt falling from 73 percent in 2003 to 52 percent in 2006,» he said. S&P added that the discipline has also helped Turkey achieve an «unprecedented» degree of monetary stability. S&P’s long-term sovereign credit rating is three notches below investment grade. Fitch Ratings has Turkey at BB- as well, while Moody’s Investors Service rates the country at Ba3, similarly three notches below investment grade. Large external imbalances remain the main reason the country is vulnerable. High oil prices in 2006 exacerbated the country’s current account deficit, which nearly hit 8.5 percent of GDP. «High, albeit falling, real interest rates have meanwhile invited large capital inflows and put upward pressure on the new Turkish lira,» the statement said. The lira is one of the best performing emerging market currencies so far in 2007, rising 2.76 percent against the US dollar. S&P estimates that high interest rates are contributing to record amounts of portfolio inflows – almost $2 billion per month – since the central bank started raising rates aggressively last June. Market volatility in Turkey is likely to increase in 2007 because of political risks from domestic elections and rising tensions in northern Iraq, S&P said. «S&P expects, however, that these political risks will remain contained, and will not impact negatively on the government’s medium-term fiscal outlook,» the statement added. S&P estimates that high interest rates will limit real economic growth to 5.4 percent in 2007.