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,” Fitch in a report said.
“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 April.
“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,” Fitch added.