Fitch upgrades Turkey's rating on improved fiscal policy

Reuters

Credit ratings agency Fitch upgraded Turkey's long-term foreign-currency Issuer Default Rating to "BB-" from "B+" on Sept. 6, citing improved fiscal policy and better external buffers.

Turkey has been implementing a tight monetary and fiscal policy since last year to tackle soaring inflation, which peaked at 75% in May.

Annual inflation dropped to 51.97% in August, government data showed on Sept. 3, driven by comparison to last year's higher rates and lower food prices.

However, the central bank has maintained that it will keep its monetary policy tight until inflation aligns with its targets.

In its medium-term economic programme released on Sept. 5, the government projected inflation to drop to 41.5% in 2024, 17.5% in 2025, and 9.7% by 2026.

Fitch said that stricter monetary policies, planned budget cuts, and wage adjustments will lead to lower inflation and current account deficits, ultimately helping to maintain better foreign currency reserves.

The rating agency, however said "the risk of policy reversals remains present...given Turkiye's recent history, the strong belief, at the highest political levels, in low interest rates, and the potential resistance from vested interests."

Fitch, which has upgraded Turkey's credit rating for the second time this year, also changed its outlook from "positive" to "stable".

In July, ratings agency Moody's upgraded Turkey's ratings to "B1" from "B3," citing improvements in governance and a tighter stance on monetary policy.

In May, Credit ratings agency S&P also upgraded Turkey's ratings to "B+" from "B," saying that the coordination between monetary, fiscal, and income policy is set to improve, amid external rebalancing.