Fitch upgrades Turkey to investment grade

Turkey's rating has been finally updated to investment grade by leading global credit rating agency Fitch, a move long coveted by Ankara. The credit ratings agency highlighted a moderate and declining government debt burden, a sound banking system, favorable medium-term growth prospects and a relatively wealthy and diverse economy. "Fitch Ratings has upgraded the Republic of Turkey's long-term foreign currency Issuer Default Rating (IDR) to 'BBB-' from 'BB+' and the long-term local currency IDR to 'BBB' from 'BB+'. The Outlooks on the Long-term ratings are Stable. The agency has also upgraded Turkey's Short-term foreign currency IDR to 'F3' from 'B' and the Country Ceiling to 'BBB' from 'BBB-'," Fitch said. Turkey's external finances remain a key rating weakness, said Fitch, pointing to a current account deficit seen at 7.3 percent of GDP in 2012, down from 10 percent last year. "The upgrade to investment grade reflects a combination of an easing in near-term macro-financial risks as the economy heads for a soft landing and underlying credit strengths including a moderate and declining government debt burden, a sound banking system, favorable medium-term growth prospects and a relatively wealthy and diverse economy. Fitch believes that the Turkish economy is on track to return to a sustainable growth rate, having narrowed the current account deficit (CAD) and lowered inflation after overheating in 2011," it said. The economy was expected to remain more volatile than investment grade peers and an external financing shock and recession were likely at some point but its creditworthiness has become more resilient to shocks, Fitch added. Fitch said among the main risk factors that could lead to negative rating action were a balance-of-payments crisis caused by an external shock or a political shock. It also highlighted the risk of an escalation in regional instability. "Fitch does not expect the civil war in Syria to draw Turkey into a full-scale military conflict. If such an event took place and had a significant economic and fiscal impact it could lead to a downgrade," it said.