12 August, 2020

S&P Global watching Turkey ‘closely’ after Erdogan power play

LONDON (Reuters) – S&P Global is watching Turkey closely, the rating agency said , and it also warned that President Tayyip Erdogan’s turn to install his son-in-law as finance minister showed power in the united kingdom was now increasingly centralized.

S&P rates Turkey at BB-, below what rivals Moody’s and Fitch using a downgrade in May, only one of the company’s senior sovereign analysts, Frank Gill, told Reuters the nation’s political changes were keeping it in focus.

“It is a bit premature to rush to conclusions, but obviously decisions is increasingly centralized,” Gill said after Erdogan appointed his son-in-law Berat Albayrak when the treasury and finance minister in her new cabinet.

“When institutions work in sovereigns, you then have a strong civil service which could take decisions, technical decisions which normally happen on a non-political level,” but wasn’t longer so in Turkey, he was quoted saying.

S&P includes a stable outlook on its local and foreign-currency Turkey ratings and has warned its fiscal metrics could sour quickly if the current pressure on its real estate markets continues. Which is gonna rely on what Erdogan and also the government do next.

“We are watching closely just what policy over the state of emergency will likely be, just what the overall fiscal stance shall be,” Gill said. “Will there be further extensions within the credit guarantee scheme? And where is a growth gonna are derived from since the world thinks the funding capacity with the banks is all around exhausted?”

He also questioned regardless of if the government would start pumping additional stimulus on the economy to combat the expected hit to growth from recent rate hikes. If it does, that can improve the government’s debt levels.

“If you think that Turkey carries a huge current account deficit and previous times it had been mostly intermediated from the banks essentially leveraging externally, it looks like the very last sector that can keep high growth going is the public sector, which could mean more external leverage (debt).

“But unfortunately we cannot know yet whether which will be the case.”

(This story corrects S&P outlook on Turkey to stable from negative in paragraph 5)