Treasury and Finance Minister Mehmet Şimşek has attributed the S&P Global Ratings’ upgrade of Türkiye’s rating late Friday to the positive results of the government’s economic program, saying it indicates a positive trajectory and heralds further increases in the period ahead.
The credit ratings agency moved Türkiye’s long-term sovereign rating one notch higher to “B+” from “B,” keeping its outlook positive. The coordination between monetary, fiscal and income policies is said to be set to improve amid external rebalancing.
It said policymakers “are set to persevere with efforts to reduce elevated inflation through a combination of monetary and credit tightening, less generous wage settlements and gradual fiscal consolidation.”
“The positive results of our (medium-term) program are reflected in the decisions of credit rating agencies,” Şimşek wrote on social media platform X, formerly Twitter.
He said on Saturday, “S&P upgraded our country’s credit rating by one notch after 11 years while maintaining a positive outlook.”
Turkish policymakers have long criticized rating agencies for falling behind markets with their assessments, calling for upgrades.
“The positive rating outlooks of S&P, Fitch and Moody’s herald further rating increases,” Şimşek said.
This March, Fitch Ratings lifted Türkiye’s credit rating to “B+” from “B.” That came two months after Moody upgraded the country’s outlook from positive to stable while affirming its “B3” ranking.
“We are determined to carry the confidence in our country to the highest level with our strengthened program,” Şimşek noted.
Separately, on Saturday, he told a business event in Germany the upgrades indicated that “we are on the right track.”
The credit action came a week after the Turkish central bank kept its policy rate unchanged at 50%.
The bank, which hiked its benchmark one-week repo rate by 4,150 basis points since June last year, said on Friday that inflationary pressures remained alive.
The rating agency said it could consider raising Türkiye’s sovereign rating if policymakers reduce inflation, restore confidence in the Turkish lira, narrow current account deficits and reverse dollarization.
“We don’t anticipate the inflation rate in Türkiye dropping to single digits until 2028,” the agency said in a statement.
The Central Bank of the Republic of Türkiye (CBRT) Governor Fatih Karahan last month pledged to do “whatever it takes” to tame inflation, which climbed to 69.8% in April, official data showed on Friday.
It came in a bit below expectations but marked the highest since late 2022 on strong rises in education, restaurant and hotel prices.
“Unfortunately, inflation is quite high. We will reach a peak with inflation of over 70% in May,” Şimşek said.
However, he stressed that the economic program would help ensure a rapid decline starting in the second half of the year and that “we will return to single-digit inflation by 2026.”
“It’s a long journey, but we will succeed because we have a good program.”
The central bank sees inflation peaking around 73%- 75% in May before starting its decline in the second half of the year to reach 36% at the end of 2024.
Şimşek said price stability, namely bringing inflation down to single digits, remains their utmost priority.
“Fiscal discipline and structural transformation are also other priorities,” he stated, emphasizing the government’s commitment to economic reforms aimed at sustainable growth.
S&P said it “forecast rising portfolio inflows and narrowing current account deficits over the next two years, alongside declining inflation and dollarization, although progress will be slow and reserve accumulation modest as the central bank limits depreciation of the Turkish lira.”
It also revised the transfer and convertibility assessment to “BB-” from “B+,” saying that the risk of the sovereign preventing private-sector debtors from servicing foreign currency-denominated debt is decreasing.
“We could raise the rating further should balance-of-payments outcomes continue to improve, inflation decline and domestic savings in Turkish lira rise, rebuilding the government’s usable foreign currency reserves,” it added.
Şimşek noted progress in reducing the current account deficit through legal reforms and emphasized the resurgence of investor confidence. He pointed to significant increases in net capital inflows and a buildup in reserves.
S&P said it could revise the outlook if the pressures on the country’s financial stability or more comprehensive public finances intensified, potentially in connection with continued currency depreciation and a shift away from anti-inflationary policies.
S&P upgraded Türkiye’s sovereign credit outlook to positive from stable in November following steep rate hikes by the central bank. The country delivered aggressive tightening after reversing years of easing monetary policy.
The government’s medium-term program, unveiled last September, seeks to help tame inflation, rebuild foreign exchange reserves and flip chronic current account and budget deficits to surpluses.
Şimşek said there is a clear political will and support for the program.
“We are already seeing the results of our efforts, and I believe we will succeed.”