Fitch Ratings, said that deteriorating economic policy credibility in recent months and initial policy following elections in June has resulted in heightened uncertainty in Turkey.
Fitch Ratings has downgraded Turkey’s sovereign debt to BB with a negative outlook, citing inflation and widening current account deficit.
The current account deficit is expected to widen to 6.1 per cent of GDP this year but should decline to 4.1 per cent next year by the weakening lira, lower oil prices and a growing tourism sector.
Fitch said foreign direct investment will remain around one per cent of GDP, meaning that the deficit will be largely debt-financed which is expected to drive net external debt to 35 per cent of GDP by end of 2018.
This environment will make it challenging to engineer a soft landing for the economy.
The Turkish economy is still in trouble with annual inflation at 15 per cent hitting a 15-year high in June, this is mainly driven by the falling lira, which has lost 27 per cent so far this year, added Fitch.
The recent economic changes which followed Edorgan’s election victory include government taking take a greater role in setting monetary policy and amendments to the central bank’s articles of association strengthen the president’s influence which will go as far as appointing governor of the central bank.