A Turkish economist thinks there are a number of large investment funds, including pension funds that are just waiting for Turkey’s credit rating to be upgraded before investing in the country. This investment could be as much as $30 billion annually, according to Professor Erdal Tanas Karagol, who is economics director for the Foundation for Political, Economic and Social Research.
There is a possibility that ratings agencies could consider raising Turkey to investment grade level quite soon. In particular Fitch Ratings is due to carry out its annual evaluation of Turkey’s credit rating. Pension funds are thought to be keen to invest in Turkey, but are currently unable to do so as it doesn’t have investment grade status which is necessary according to the funds guidelines.
One of the major problems facing Turkey is how to fund its current account deficit, but if the country were to be upgraded this would at least partially solve this problem due to the extra funds entering Turkey each year, as this would reduce the government’s borrowing costs. The additional money would mean the Treasury would be more able to finance low-cost loans.
Apparently if Turkey is able to reduce its current account deficit, or if it can reduce its vulnerability through increasing currency reserves or by decreasing private-sector debts, then Moody’s will reassess Turkey’s credit rating. Moody’s increased the rating from Baa2 to Baa1 in June this year, but this still means Turkey is regarded as being speculative and still subject to credit risk.