ECR chart of the week: Turkey’s investment-grade rating is five years too late


Matthew Turner
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The untimely upgrade by Moody’s leaves rating agencies behind the curve in assessing country risk.

The trajectory of Turkey’s country risk score tracks its prominence to investment grade during the past decade.

It has taken Turkey more than 10 years to reach investment-grade status, with Fitch and Moody’s upgrading the country in recent months.

Fitch upgraded Turkey’s long-term foreign-currency rating to BBB- from BB+ in November. Moody’s followed suit in May after the rating agency upgraded the country’s government bond ratings from Baa3 from Ba1.

This leaves only Standard and Poor’s to play catch up in assigning Turkey with an investment-grade status.

Moody’s decision to upgrade Turkey will bring a welcome boost to investment inflows, given that many emerging market real-money investors historically have needed at least two mainstream rating agencies to rate a sovereign as investment grade before it could allocate money to the respective bond market.

Turkey’s investment grade finally brings Moody’s and Fitch in line with the long-held views of ECR analysts. The upgrades were preceded as far back as September 2006 by analysts participating in the ECR survey (see chart below), when Turkey’s ECR score peaked above the 50-point investment-grade threshold.


Economists have long pointed out that Turkey’s resilience to the global economic slowdown should make it worthy of investment-grade status. ECR data reveal that between September 2008 and September 2010, Turkey’s ECR score improved by 10.8 points.

While much of Europe has slid inexorably into recession, sound economic policies have left Turkey’s economy sheltered from the contagion effects of the eurozone debt crisis.

Its reputation for sound macroeconomic management was boosted by the fact that no Turkish banks fell into difficulty during the global financial crisis. Moreover, Turkey’s banking stability indicator, on a score of 6.8 points (out of 10), is the country’s strongest sub-factor score and is sustaining investor confidence in the country.

In terms of real GDP growth, its improved economic outlook resulted in the country’s economic assessment advancing by one point to 60.4 in 2012.

Economic concerns might have eased but Turkey’s political and structural indicators have seen the largest score improvements in the 2012 survey results, reflecting the great stride the country has made in these areas since Euromoney first conducted its country risk survey in 1993.

And with a corruption score of 5.1 points, it fairs better than other emerging markets for perceived corruption – being one of only four emerging markets to have a corruption score above five points (Corruption poses largest threat to emerging markets in ECR survey).

However, Arif Orcun Soylemez, one of ECR’s expert contributors for Turkey, cautions: “What I understand by Moody’s credit rating action on Turkey is the following: Turkey is changing for the better and therefore [the country] is more resilient to the caprices of international investors.

“OK, Turkey has a better managed economy now. But I don't think that is enough to have immunity from the detrimental effects of capital movements.

“Turkey is running current-account deficits and financing those deficits with portfolio inflows. Given the volatile nature of portfolio flows, this is a risk factor.”

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