Moody's Investors Service has upgraded Turkey's sovereign credit rating, the first such rating action in more than a decade, citing improvements in governance and economic policies.
The country's sovereign credit rating was raised to “B1" from “B3", with a positive outlook, New York-based Moody's said on Friday.
A “B1” rating, which is “highly speculative”, is four levels below investment grade, according to the ratings scale of Moody's. Non-investment grade makes it more difficult for a country to get access to capital markets and raise funding when it wants to borrow.
This matches S&P Global Ratings' action in May, in which it upgraded Turkey to “B+".
Moody's' decision was driven by improvements in Ankara's policies, “more specifically the decisive and increasingly well-established return to orthodox monetary policy”.
“This is yielding first visible results in terms of reducing Turkey's major macroeconomic imbalances … the positive outlook reflects a balance of risks skewed to the upside,” it said.
“As the credibility and effectiveness of monetary policy rises, macroeconomic stability and strengthened institutions may allow Turkey's underlying credit strengths … reduce the risk of long-lasting inflation shocks in the future.”
Turkey is facing economic challenges, underpinned by chronic inflation. President Recep Tayyip Erdogan installed an economic team to stabilise the economy and control consumer prices last year.
Inflation in the country hit 69.8 per cent in April, above initial projections, the Central Bank of Turkey said in its latest inflation report released in May.
The regulator is more optimistic in the longer term, expecting inflation to go down to 38 per cent by the end of 2024 and further to 14 per cent at the end of 2025, it said.
That silver lining is in line with government data released in May that showed Turkey's economy expanded by 5.7 per cent in the first quarter of 2024, as domestic demand strengthened.
“Inflation and domestic demand have started to moderate, giving us greater confidence that inflationary pressures will ease significantly over the coming months and into 2025,” Moody's said.
The Turkish lira, however, remains one of the worst performers among emerging market currencies tracked by Bloomberg. It is down about 10 per cent so far in 2024.
However, the central bank's move of “rapidly enhancing” the credibility of its monetary policy is helping to restore confidence in the currency, Moody's said.
“Moreover, the tight policy stance is already materially reducing Turkey's elevated external vulnerability.”
Another positive development for Turkey is its removal from the Financial Action Task Force “grey list” of countries that face tighter monitoring for money laundering and terrorism financing last month, as the country has made “significant progress” in its fight against illicit actions in the sector.
The decision is expected to boost investor confidence in Turkey's economy and would have “extremely positive consequences” for its financial sector, Turkey's Vice President Cevdet Yilmaz said on X after the FATF's move.
Moody's cautioned, however, that external vulnerability risks remain “significant” for Turkey. Also, while political risks have declined, they remain a key rating constraint, it said.
It noted that with the next parliamentary and presidential elections in 2028, this gives Ankara time to bring inflation down to previous low levels, “even at the cost of temporarily low economic growth”.
“However, a very sharp slowdown in growth coupled with rapidly rising unemployment could lead to political pressure for an early easing of the monetary policy stance,” Moody's said.
“We expect that the authorities will maintain the tight economic policy stance for some time, so as to ensure that inflation expectations converge to the central bank's target on a sustained basis.”
The lowdown
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Director: Bryan Singer
Starring: Rami Malek, Lucy Boynton, Gwilym Lee
Rating: 3/5
Most%20ODI%20hundreds
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Company%20profile
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Kanye%20West
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Benefits of first-time home buyers' scheme
- Priority access to new homes from participating developers
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- Mortgages with better interest rates, faster approval times and reduced fees
- DLD registration fee can be paid through banks or credit cards at zero interest rates
The biog
Name: Mariam Ketait
Emirate: Dubai
Hobbies: I enjoy travelling, experiencing new things, painting, reading, flying, and the French language
Favourite quote: "Be the change you wish to see" - unknown
Favourite activity: Connecting with different cultures
Emergency
Director: Kangana Ranaut
Stars: Kangana Ranaut, Anupam Kher, Shreyas Talpade, Milind Soman, Mahima Chaudhry
Rating: 2/5
