(The following statement was released by the rating agency)
Feb 12 - Turkey's adoption of anti-terrorism financing
legislation last week reduces the risk of suspension from the Financial Action
Task Force (FATF), which could have disrupted access to financial markets for
Turkish entities including the sovereign, Fitch Ratings says.
Had it restricted market access, FATF suspension could have increased Turkey's
vulnerability to an external financing shock and reduced the benefits it has
received from its strong fiscal financing options and debt-management capacity,
and its well-established international capital market access. FATF had set a
deadline of 22 February for Turkey to adopt legislation.
Turkey's low savings rate means it needs to run current account deficits and
secure external funding to finance investment and growth. The country has been
able to roll over debt and attract net inflows despite volatile external
conditions during the financial and eurozone sovereign debt crises.
Nevertheless, net short-term and portfolio debt forms the largest proportion of
current account deficit financing, while the FDI share remains moderate.
However, as we said when we upgraded Turkey to investment grade last year, we
have grown more confident that Turkey could cope with a severe shock without
suffering a full-blown financial or sovereign debt crisis.
We upgraded Turkey to 'BBB-' from 'BB+' in November, citing a combination of
reduced, near-term macro-financial risks as the economy heads for a soft landing
and underlying credit strengths including moderate government debt, a sound
banking system and favourable growth prospects. One of our key assumptions was
that FATF membership would not be suspended, or that if membership were
suspended it did not result in countermeasures that prevented Turkish entities
accessing international financing.
The FATF, which sets international standards for combating money laundering and
terrorist financing, had said it would suspend Turkey's membership on 22
February unless the country adopted legislation "to adequately remedy
deficiencies in its terrorist financing offence" and "to establish an adequate
legal framework for identifying and freezing terrorist assets." While there is
no precedent for suspension, the FATF lists avoiding the risk of sanctions "or
other action by the international community" as one of the benefits of
implementing its recommendations.