Moody’s has upgraded Turkey’s credit rating by two notches, raising it to B1. However, according to economist Kozanoğlu, much harder days await the citizens.
Implementing an ‘IMF program’ without the IMF, enforcing austerity policies on the public, and seeking foreign investors abroad, the government received the signal it wanted from international credit rating agency Moody’s. Moody’s raised Turkey’s credit rating from B3 to B1 by two notches.
According to Moody’s, the return to orthodox monetary policy influenced the decision. However, despite the credit rating increase, Turkey’s rating remains at the “Highly speculative” level. Moreover, despite the two-notch increase, Turkey is still below investment grade. To reach investment grade, the credit rating needs to be raised by four more notches.
MISLEADING CREDIT RATING INCREASE
Economists evaluated the situation on social media, emphasizing “there’s nothing to celebrate.” Former Central Bank governor Hakan Kara said, “There is no need for a victory cry,” likening the situation to “making it 5-2 while being down 5-0 in a match.”
Associate Professor Orhan Karaca noted, “The ratings we received have returned to their 2020 levels. But now we have a country with a more unequal income distribution and more widespread poverty. Why did we go through this adventure?” BirGün columnist and economist Hayri Kozanoğlu assessed the decision, reminding that Moody’s currently evaluates the level of confidence foreign capital has in investing in countries. Kozanoğlu said, “Mehmet Şimşek’s economic policies are already shaped according to foreign investors,” expressing that the rating increase was not a surprise. However, according to Kozanoğlu, the rating increase is misleading. “It is not a development that will improve the standard of living or purchasing power of the citizens,” said Kozanoğlu, adding, “High-interest rates are already favorable for foreign investors buying bonds in Turkey.”
TOUGH DAYS AHEAD
Kozanoğlu highlighted that the wage increases for salaried employees are below the official inflation rate, stating, “This will slow down demand. Turkey is facing a sharp economic recession. Although high-interest rates are seen as an opportunity for foreign investors, they make borrowing more difficult. Production has slowed down, and this problem seems to continue. Debts will become unpayable, layoffs will increase, and unemployment will rise,” he said. “Even if inflation ends the year at around 40 percent as expected, it is still a very high rate. Even if inflation decreases, it will remain high,” he said. Kozanoğlu warned that these indicate a stagflation process, “I think we will enter stagflation from the last quarter of the year,” he said.
Stagflation means the simultaneous occurrence of economic stagnation and high inflation. During stagflation periods, while unemployment increases, prices continue to rise. The Central Bank defines stagflation as “a situation that occurs when inflation rises in an environment where production falls.”
Original article: www.birgun.net
