* Rating upgrade considered if external risks reduced
* C/a deficit adjustment seen slower in 2013
(Adds quotes, details, background)
ISTANBUL Oct 30 Ratings agency Moody's said on
Tuesday that a history of political friction between secular and
religious elements of Turkish society remains a credit challenge
for the country.
In a statement, Moody's also said it could consider
upgrading Turkey if the government makes further progress in
reducing its current account deficit, increasing foreign
exchange reserves or reducing private sector external borrowing.
The statement came a day after the Turkish police fired tear
gas and water cannon to disperse thousands of secularists at a
banned rally on the country's republic day.
"Turkey's resilience to economic, financial and political
vulnerabilities has strengthened considerably in recent years...
Nonetheless, there are some noteworthy areas of political risk
in Turkey, some of which stem from secular-religious tensions,
others from longstanding regional and ethnic conflicts," Moody's
Moody's upgraded Turkey in June to Ba1, one notch below
investment grade, and maintained a positive outlook, citing
improvement in public finances.
Turkey's current positive outlook would likely be moved to
stable if progress on managing external risks were reversed or
public finances deteriorate, Moody's said.
The agency said it expects Turkey's large current account
deficit, seen as its main economic vulnerability, to "remain
relatively high at 7.8 percent and 7.4 percent of gross domestic
product (GDP) in 2012 and 2013 respectively," Moody's said.
It forecast real GDP growth to slow in 2012 to three
percent, from 8.5 percent in 2011.
"Although the market takes any rating-agency related news
flow positively these days with the investment grade
expectations, these conditions are not easy to achieve in the
short term," wrote Ozgur Altug, chief economist at BGC Partners.
"Therefore, we think that it is unlikely to see an
investment grade rating upgrade from Moody's in the short term."
Rival ratings agency Fitch said early in October it will
hold a conference on Turkey's credit outlook in Istanbul on Nov.
8. It too currently rates Turkey one notch below investment
grade at BB+ with a stable outlook.
After Turkey's central bank kept monetary policy tight over
the end of 2011 and the start of 2012, Turkey's current account
deficit fell to $36.1 billion in the first eight months of 2011,
down 33 percent from a year earlier. The gap reached 10 percent
of GDP at the end of 2011.
(Writing by Seltem Iyigun; Editing by Ruth Pitchford)