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Moody’s Investors Service (MIS) has recently published a statement announcing that it placed the government of Turkey’s Ba2 long-term issuer ratings, the Ba2 senior unsecured bond ratings and (P)Ba2 senior unsecured shelf ratings on review for a possible downgrade.

Explaining the reasoning behind that decision, Moody’s wrote:

“Today’s decision to place Turkey’s Ba2 rating on review for downgrade is driven by Moody’s expectation that the recent erosion in investor confidence in Turkey will continue if not addressed through credible policy actions following the June elections, leading to a sustained increase in the probability and proximity of severe balance of payments constraints.”

“The increase in the country’s external vulnerability resulting from that confidence shock can be seen in a number of indicators. Most visibly, the Turkish lira has depreciated by roughly 20% in the past three months.”

“The negative shift in investor sentiment is a significant challenge for a country that is deeply dependent on net capital inflows to finance annual gross external borrowing requirements in excess of $200 billion, reflecting the large current account deficit and sizeable short-term debt and maturing long-term debt maturities.”

“The authorities have made limited progress in addressing Turkey’s structural economic problems, most notably its structural external deficits, in recent years.”