Israel Matzav

Turkish rating outlook cut

It said Turkey's high current account deficit and net external debt in the financial sector, whose overseas borrowing stoked a credit boom and helped drive annual economic growth of around 8 percent in recent years, made it vulnerable to shocks.

The rating agency said it estimates that external financing needs will reach 142 percent of current account receipts in 2012, one of the highest levels for any rated sovereign.

"This heavy reliance on external savings exposes Turkey to shocks, either domestic - for example if recent high domestic credit growth were to result in future bad loans - or external, say if rising risk aversion were to deter foreign investors and banks and result in a net outflow of foreign capital," S&P said.

That could in turn cause rapid lira depreciation, fuelling already-high inflation and raising government borrowing costs, the agency added.

Turkey's current account deficit, which largely reflects its total dependence on energy imports, is seen as the booming economy's main weakness. The deficit stood at 10 percent of GDP in 2011 but is expected to decline to 8 percent this year.

Prime Minister Recep Tayyip Erdoğan last month announced a new tax incentive scheme aimed at reducing the gaping current account deficit by encouraging local production of some previously imported goods.

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Toprak said Turkey was unlikely to secure an investment grade rating while it maintains a large external deficit.

"It's not cyclical, it's structural and it needs time to be corrected," he said.

Labels: Turkish economy

posted by Carl in Jerusalem @ 4:40 PM