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Standard & Poor’s Rating Services has raised its long-term foreign currency sovereign credit rating on the Republic of Turkey to ‘BB-‘ from ‘B+’. At the same time, Standard & Poor’s raised its long-term local currency sovereign credit rating on Turkey to ‘BB’ from ‘BB-‘. The outlook on both ratings is stable. In addition, the ‘B’ foreign and local currency short-term sovereign credit ratings were affirmed.
Standard & Poor’s also raised its long-term foreign currency counterparty credit and senior secured debt rating on the Export Credit Bank of Turkey to ‘BB-‘ from ‘B+’, in line with the upgrade of the sovereign, the bank’s sole shareholder. The outlook is stable. In addition, the ‘B’ short-term counterparty credit rating was affirmed. Meanwhile, the ‘B+’ long-term issuer credit ratings on the Turkish City of Istanbul remain unchanged, following the upgrade at the end of July 2004 (for further information on this rating action, see Standard & Poor’s media release “Rating on City of Istanbul Raised to ‘B+’ from ‘B’; Outlook Stable” published on July 20, 2004, on RatingsDirect).
“The sovereign upgrade reflects the progress Turkey is making toward durable macroeconomic stability, and the country’s expected adherence to a strict macroeconomic program beyond 2004, which would result in further fiscal improvement, disinflation, a more sustainable public debt burden, and reduced vulnerability to market sentiment,” said Standard & Poor’s credit analyst Konrad Reuss.
“We believe that the risks on both the political and economic fronts are balanced,” he added. “On the political front, the challenges faced by the government are mitigated by its large parliamentary majority. On the economic front, the government has made clear its commitment to continued prudent policies beyond the current IMF program.”
Progress in qualifying for accession talks with the EU, together with a further strengthening of public finances, would be likely to improve the ratings. Private sector capital inflows, in particular, should benefit from greater political and economic stability and the government’s EU-accession strategy. Conversely, severe policy slippage that jeopardizes current macro-achievements, a future IMF program, and EU talks would place the ratings under renewed downward pressure.