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June 7 (The following statement was released by the rating agency)
The anti-government protests in Turkey are not a threat
to the sovereign's 'BBB-' rating at present, Fitch Ratings says. The level of
unrest is well within the tolerance of political stability embedded in the
current rating, and the economic impact so far is minor.
Low political stability and, in particular, low World Bank voice accountability
indicators (the latter falling well short of the 'BBB' median) have long been a
feature of Turkey's sovereign credit profile and are already considered
weaknesses in our sovereign rating assessment.
With this in mind, it is perhaps not surprising that the protests, in response
to the perceived authoritarian tendencies of Prime Minister Recep Tayyip Erdogan
and the Justice and Development Party (AKP), have emerged ahead of a heavy
election schedule. There are local and presidential elections in 2014 and a
general election in 2015, and Turkey's traditional secular opposition has
struggled to make itself heard.
Parallels with the Arab Spring should not be overplayed. So far, the
demonstrations have attracted educated, middle-class Turks rather than
disaffected workers or the unemployed. The AKP has democratic legitimacy and a
strong parliamentary majority, good poll ratings, and has delivered much of its
original mandate over three electoral terms. Nevertheless, the protests may yet
cause the government to reassess its stance on constitutional reform and
enhanced powers for the presidency, and advocates of a more cautious approach
should get a greater hearing.
Similarly, the demonstrations have not been on the scale that would bring about
the kind of economic dislocation that has occurred in parts of the Arab world in
recent years. The Turkish economy has performed well, inflation has come down,
and unemployment in 2012 was at a seven-year low of 9.2%. Although Turkey's
current account deficit and short-term debt are large, financing has proved
resilient throughout the post-Lehman Brothers collapse and eurozone crises. An
abundance of global liquidity has supported CAD financing and international
reserves rose to almost USD114bn (five months' imports of goods and services) in
Nonetheless, much will depend on how the authorities respond to the protests.
Poorly handled, the situation could escalate, with adverse consequences for the
economy. Persistent political and social unrest could deter tourism, destabilise
short-term capital inflows, drive up inflation and damage economic growth.
Longer-term aspirations to attract more FDI could also suffer a setback. If such
developments were to occur and have a material adverse effect on the economy,
the unrest could exert pressure on the sovereign rating.
We upgraded Turkey to 'BBB-' from 'BB+' in November.