Fitch: Turkey’s new economic policy increases credit risk

Fitch, the international credit rating agency, has reported that Turkey’s new economic policy has increased its credit risk. According to Bloomberg, Fitch, made an assessment of the Turkish economy, noting that the new economic policy mix increased the risks in the position of public finance and the public currency, while noting that this policy did not reduce the risks to macroeconomic and financial stability.

“Despite the challenging external environment, we think the policy mix is still focused on high growth and employment, especially until the elections in June 2023,” the Fitch report said.

The report stated that it was aimed to support the TL without raising interest rates in the export-led economic model with the exchange rate protected deposit system implemented in 2021. The report went on to share following: “However, the pressure on the TL increased again and deepened. Dollarization is high, international reserves are being stretched, and inflation is also very high.” It was noted that the policy response had direct and indirect costs in public financing.

The evaluation regarding downgrade of Turkey’s credit rating last week, was “The downgrade reflects the fact that this policy response is insufficient to attract capital inflows to fund the current account deficit, the risks that it may reduce consumer confidence and external financing.”