The joy of a student who got a 1 out of 10 raising their grade to a 2

Three weeks before the elections, the international credit rating agency Fitch upgraded Turkey’s credit rating from “B” to “B+” and its outlook from “Stable” to “Positive.”

Government supporters are overjoyed. As Fitch made this assessment, were things really getting better in Turkey? Fitch is of the opinion that the expectation of a decline in inflation and the current account deficit is positive.

Let us set aside the unnecessary joy and boasting born of ignorance and look at what this upgraded rating actually means at this level. We are facing a situation similar to a student who received a 1 out of 10 in math raising their grade to a 2 out of 10.

With its governance over the last three years, the AKP government has downgraded Turkey to the level of countries such as Tajikistan, Mongolia, Angola, Nicaragua, and Kenya. Now the rating is one notch higher, but the league we are in is still “Highly Speculative” and “Non-Investment Grade.”

To better understand the subject, let us recall Fitch’s ratings and what these ratings mean.

AAA, AA+, AA, AA-: Ratings at this level indicate that you are a country at the highest and high Investment Grade level.

A+, A, A-: Ratings given to countries at the upper-medium Investment Grade level.

BBB+, BBB, BBB-: Indicates that you are a country at the lower-medium Investment Grade level.

BB+, BB, BB-: Indicates that you are at a Speculative and Non-Investment Grade level.

B+, B, B-: Indicates that you are a country at a highly speculative and Non-Investment Grade level. Turkey had a B rating in the middle of this category. Now it has been upgraded to a B+ rating. But the outlook is still in the Highly Speculative, Non-Investment Grade countries category…

CCC+, CCC, CCC-, CC, C: A category of countries with high bankruptcy risk, on the verge of bankruptcy, at a Non-Investment Grade level.

DD, D: Non-Investment Grade level with default risk, bankrupt.

Between 1992 and 1994, Turkey was at an investment-grade level with a BBB rating. With the 1994 crisis, it fell into the non-investment grade category at the BB level. In 2002, we were at our current credit rating of B stable. When full membership negotiations with the EU began, there was a significant jump in foreign investments, but the credit rating only reached the BBB levels, which is investment grade, in 2013. Since 2017, we have fallen back to the Non-Investment Grade, BB and B levels.

It is meaningless for the government, which downgraded the country from the BBB levels that indicate an investment-grade level to a single B level, to look for a success story here.

Despite all the destructive policies of the AKP government, Turkey, with its industry, exports, and position between Europe and Asia, certainly could not be compared to countries like Tajikistan, Mongolia, Angola, Nicaragua, and Kenya. Downgrading Turkey’s credit rating to the level of these countries is a source of great shame. For Turkey to reach a directly investment-grade level, its rating needs to be upgraded by 6 notches at once.

On the other hand, did Fitch really give this rating based on the expectation that inflation would fall and the current account deficit would narrow in Turkey? Perhaps it cited this as a reason. But in my opinion, there is not the slightest sign that inflation will fall. Moreover, TÜİK (Turkish Statistical Institute) has no credibility. Especially when looking at the 2024 budget, I can easily state that inflation will increase this year, let alone fall. I had previously announced that I predicted inflation would be at the 140 percent level this year, not according to TÜİK inflation, but according to ENAG. We will wait and see. For the last two months, there has been a contraction in the foreign trade deficit, stemming not from tremendous increases in exports, but from a decrease in imports. But I cannot yet see a significant improvement in the current account deficit. The foreign trade deficit narrowed by 49 percent in the first two months of the year. This is a great success, but we have no evidence as to whether it is permanent.

In my interpretation, this rating sends this message to foreign investors and Turkey: For direct foreign capital investments, Turkey is still not an investment-grade country. But there is no risk of Turkey defaulting in the near future. It has the capacity to borrow at high real interest rates and repay its debts. Hot money can go if it finds the right interest rate.