Top officials hailed on Saturday the latest upgrade of Türkiye’s credit rating by Fitch as Treasury and Finance Minister Mehmet Şimşek cited the country as the only one this year to receive an increase from all three major agencies.
“The International credit rating agency Fitch raised our credit rating for the second time this year, from B+ to BB-,” Şimşek said in a post on X.
“Thanks to our program that strengthens our macro-financial stability and increases our resilience, we are the only country to receive a credit rating increase from the three major credit rating agencies in 2024,” he added.
Fitch Ratings upgraded Türkiye’s long-term foreign-currency issuer default rating to “BB-” from “B+” on Friday, citing improved fiscal policy and better external buffers.
It also cited the expectation of lower inflation and current account deficits while giving a “stable” outlook.
Since last year, Türkiye has been implementing a tight monetary and fiscal policy to tackle soaring inflation, which peaked at 75% in May.
Annual inflation dropped to 51.97% in August, official data showed earlier this week, easing the price pressures amid expectations for disinflation to continue in the upcoming period.
“With our Medium Term Program, which we announced this week, we will make permanent the gains we have achieved in the last year and further increase confidence in our economy,” Şimşek pledged.
In its medium-term economic program (MTP) released on Thursday, 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 agency expected the inflation to finish the year at 43% while suggesting the rate drop to 21% at the end of 2025.
“Given the still high projected level of inflation, the premature easing of monetary policy or the abandonment of the current policy direction, which is not our base case, could reignite inflationary pressures and consequently macro-financial stability and balance of payments risks,” it said in a statement.
Fitch said reduced financial dollarization and foreign exchange demand, capital inflows and increased access to external borrowing have lifted Türkiye’s reserves to $149 billion, with net reserves at $41 billion.
Reserves are forecast to increase to $158 billion by the end of the year and $165 billion by the end of 2025.
The agency said positive, accurate interest rates, low current account deficits and the gradual decline in foreign exchange-protected deposits will likely support the durability of improvement in Türkiye’s external buffers.
It noted that the monetary tightening of the Central Bank of the Republic of Türkiye (CBRT) has led to a real appreciation of the Turkish lira, which is important for the country’s disinflation strategy.
“Fitch has greater confidence that the maintenance of a tight monetary policy stance, with an easing cycle starting in early 2025, combined with projected fiscal consolidation and prudent minimum wage adjustments will support a significant decline in inflation and help maintain improved external liquidity buffers, low current account deficits and reduced dollarisation,” said the statement.
Pointing to the 500 basis points hike of the policy rate by the CBRT in March, Fitch said the monetary authority “has strengthened policy transmission through higher reserve requirements, deposit auctions and measures to limit the pace of local- and foreign-currency credit growth.”
In July, ratings agency Moody’s upgraded Türkiye’s ratings to “B1” from “B3,” citing improvements in governance and a tighter stance on monetary policy.
Earlier in May, the credit ratings agency S&P also upgraded Türkiye’s ratings to “B+” from “B,” saying that the coordination between monetary, fiscal and income policy is set to improve amid external rebalancing.
Moreover, Fitch also raised the country’s rating to “B+” from “B” early in March, thus making the Friday upgrade the second one this year.
Lower current account deficits
After more than halving to 1.9% of gross domestic product (GDP) in 2024 annually, Fitch expects Türkiye’s current account deficit to remain low, averaging 1.7% in 2025-2026.
“This is due to a tight policy mix, improved export demand derived from the recovery in the eurozone, continued growth in tourism receipts and lower gold and consumer imports,” said the statement.
Fitch expects the government deficit to ease slightly to 5% of the gross domestic product (GDP) this year, down from 5.2% in 2023, and later decline significantly to 3.1% of GDP next year and further to 2.8% in 2026.
The government debt is estimated to fall to 27.3% of GDP in 2024, down from 29.6% last year.
The agency forecasts Turkish economic growth to slow to 3.5% this year and 2.8% in 2025, as it expects the continuation of a tight monetary policy stance combined with significant fiscal consolidation and a minimum wage increase to reduce inflation that will continue cooling domestic demand.
“The EU’s projected gradual recovery will support net exports,” it added.
Regarding the upgrade, Trade Minister Ömer Bolat said that Fitch’s rating upgrade “once again shows that the improvements in the macroeconomic indicators of the Turkish economy are also acknowledged in the international arena.”
“In particular, the decline in inflation, the increase in national income, improvements in foreign trade and current account deficits, our determined steps towards achieving financial stability, the increase in foreign exchange reserves and our efforts for the fair distribution of social welfare strengthen the balancing and stability process in our economy,” he said on X.
Analysts have also welcomed the decision, highlighting that the country was closer to the investment grade.
The AA Finance analyst and economist Haluk Bürümcekçi stated that Türkiye is “three notches away” from reaching the “investment grade” and that a change of outlook to “positive” is possible in 2025.
“The last credit assessment of this year will be made by Standard & Poor’s (S&P) on Nov. 1, and since the outlook is positive, we think there will be another increase in the credit rating,” he said.
Timothy Ash, senior emerging markets strategist at Bluebay Asset Management, pointed out the decision by Fitch Ratings to be “a direct result of the policy adjustment made by Treasury and Finance Minister Şimşek and his team.”
“They should be congratulated for this. Türkiye deserved this as it is now on an improving rating trajectory.”
“Moody’s decision to raise its credit rating by two notches confirmed this,” he added.
