Fitch Confirms Turkey's Credit Rating at 'BB-'; Inflation and Growth Projections Unveiled

Fitch Ratings confirmed Turkey's long-term credit rating at 'BB-' and maintained a stable outlook in its latest assessment of the country's economy. The rating agency highlighted key supportive factors, including low public debt, a large and diversified economy, relatively high per capita income compared to 'BB' category peers, and a resilient banking sector with a history of accessing external financing during stress periods.

Turkey's Economy and the 'BB-' Credit Rating Confirmation

Fitch emphasized the following elements supporting Turkey's creditworthiness:

■Low government debt and a large, diversified economic base

■Higher per capita income relative to other 'BB'-rated countries

■Proven ability to secure external financing in times of stress

■Resilient banking sector with strong capital buffers

Inflation and Growth Outlook

The report projected Turkey's potential growth rate at approximately 4%, with actual growth expected to reach 2.8% in 2024 and 4.4% in 2025. Inflation, currently at 32% in June 2024, is anticipated to decline to 29.5% by the end of 2026.

Central Bank Policies and Foreign Reserves

The Central Bank's recent decision to raise the funding cost by 300 basis points and tighten credit limits was noted as a measure to stabilize the lira amid geopolitical tensions. Fitch expects gross foreign exchange reserves to reach $167 billion by 2026, reflecting partial recovery supported by forex interventions.

Risk and Opportunity Factors

■Sustainable reduction in external financing needs and strengthening of external buffers could lead to a credit upgrade.

■Continued disinflation and tight monetary stance are critical for maintaining investor confidence.

■Growth volatility remains a short-term risk factor.

Kerem Tufan (Director of Commercial Loans and Central Bank Policies): "Fitch's affirmation underscores Turkey's structural economic strengths, but inflation and growth uncertainties persist as key concerns for investors. The projected rise in foreign reserves is pivotal for managing external debt costs. For the banking sector, this outlook signals potential easing in loan interest rates and expanded credit access for SMEs, aligning with broader monetary policy objectives.