The credit rating agencies evaluate the credibility of the countries and companies. While measuring this credibility, they consider the economic indicators of the country as well as the political and legal situation which directly or indirectly affects the economy and appreciate a final rating by assessing the country’s risks.
Turkey’s exam with the credit rating agencies
Turkey’s history with credit rating agencies dates back to 1990. Standard & Poor’s (S&P) announced Turkey’s position as an ‘investible country’ only in 1992 due to global problems. Moody’s assigned a Baa3 rating, namely a ‘low-mid rating’, to Turkey in that year. In 1994, Fitch assigned a ‘highly speculative’ credit rating to Turkey. Turkey lost its position as an ‘investible country’ in 1994, which was regained in 2013. This position was preserved only for three years. Turkey’s rating was downgraded after the coup attempt.
Despite the relatively rapid recovery experienced following the failed coup attempt in Turkey in 2016, the credit rating agencies downgraded or turned Turkey’s rating into a stable outlook before their rating schedule, thus they contributed to worsening the damage inflicted by the coup attempt on the financial markets. Even though Deputy Prime Minister Mehmet Şimşek gave the message that everything was back on track to the global investors via teleconference, the positive effects of these messages decreased with the negative credit ratings assigned by these agencies. S&P lowered Turkey’s rating only after five days of the failed coup attempt. The same agency lowered Turkey’s outlook to negative on January 27, 2017, again contrary to the schedule. Also Fitch downgraded Turkey’s credit rating on the same day. Moody’s also downgraded Turkey’s rating on September 23, 2017 and lowered its outlook to negative on March 18, 2017.
The credit rating agencies frequently revise their growth expectations for Turkey. For example, Moody’s initially envisaged Turkey’s growth rate as 2.2 percent for 2017 and then as 2.6 percent and 3.7 percent, but the actual growth rate was 7.4 percent. This demonstrates the negative perspective of the credit rating agencies about Turkey.
Examples from other countries
Although they are so tightfisted about Turkey, decisions of credit rating agencies about Greece are quite interesting. If we make an evaluation based on the macroeconomic indicators considered in rating, they are supposed to grade Turkey ‘high’ and Greece ‘low’. However, the contrary is the case. On January 20, 2018, S&P upgraded Greece’s rating from B- to B, preserving its outlook ‘positive’. According S&P, Greece has a positive outlook although it did not come out of the crisis on its feet, whereas Turkey’s outlook is ‘steady’ (according to S&P’s decision of May 2018) despite the fact that it is the second fastest growing country in OECD.
Turkey is not the only country reacting to non-objective decisions by credit rating agencies. In 2014, Italy took S&P and Fitch to the court for lowering their rating and making a negative impact on its markets in 2011 and 2012. Reliability of these agencies was also discussed in the EU in 2014 and three technical standardization regulations were ratified.