'Turkey has more fiscal space than monetary policy space'

Reuters

Turkey has room for further fiscal stimulus to combat the economic impact of the coronavirus outbreak as its response so far has been “pretty moderate” compared with other countries in similar positions, a Fitch Ratings executive said on April 23. 

There is however little scope for further interest rate cuts, said Douglas Winslow, the agency’s director, European sovereign ratings. 

So far, the central bank has ramped up a bond-buying programme, including nearly 27 billion lira ($3.64 billion) of government debt. Turkey also postponed debt payments and reduced the tax burden on various sectors as part of a 100 billion lira package of measures that included doubling the limit of its credit guarantee fund. 

The steps announced so far are equivalent to around 2% of GDP, Winslow said. 

“If you look across the piece this is a pretty moderate package for countries being similarly affected by coronavirus,” he said in a webinar, adding Turkey’s general government debt also started the crisis significantly below similarly-rated countries at around 33% of GDP. 

Fitch expected that to rise to above 38% this year, still below the projected 51% figure for peer group countries. 

“We definitely think there’s more fiscal space than there is monetary policy space, which is a key focus for the BB- credit rating,” said Winslow, adding Turkey’s next scheduled rating review was slated for August. 

In a bigger-than-expected move aimed at limiting the epidemic’s economic damage, the central bank cut interest rates to 8.75% on Wednesday. 

Fitch expected the policy rate to end the year at that level, Winslow said. 

Turkey is tilting into its second recession in less than two years after a surge in coronavirus cases. Ankara has moved to curb its spread by closing schools, bars and cafes, as well as shutting borders and limiting domestic travel. 

The economy was expected to shrink by 2% in 2020, Winslow said.