Update - Japan Agency Says Turkey's Rating Outlook Stable

A new report released on Friday by the Japanese Credit Rating Agency has maintained Turkey's ratings and predicts a stable outlook for the country's economy.



Turkey's 77-million-strong population and US$10,000 GDP per capita level led JCR into maintaining its BBB- rating.



However, Turkey's macroeconomic instabilities caused by a low savings ratio, permanent budget deficit and strong dependency on the financial market for external financing factors which could challenge the rating's stability, said JCR.



Turkish economist Mehmet Emin Yılmaz said JCR's risk factors were known by the markets and that those risks could turn into crisis only if the global liquidity tap is tightened.



Ankara's prudent fiscal policy and strict banking supervision has supported public, banking and household sectors, providing buffers against shocks according to JCR.



The JCR predictions have come shortly after the OECD revised its growth outlook for Turkey earlier this week. On Wednesday, the organization put Turkey's year-end growth at 3.3 percent, an improvement on its earlier prediction of 2.2 percent.



Turkey's credit standing could improve if its main imbalances - large current-account deficit and high inflation, could be reduced further said ABN Ambro Senior Economist on Europe and Middle East Developing Markets, Arjen Van Dijkhuizen.



"Turkey's ratings would profit if the country improves its export competitiveness and increases domestic savings, while reducing GDP dependence on external financing, which makes the country sensitive to a sudden stop of capital inflows," Dijkhuizen said.



Looking ahead to potential political risks the JCR noted: "Pressure for increasing spending may mount as the country draws closer to the presidential and general elections in 2014-15."



However, JCR holds that it would be unlikely for the government to manage its public finances in a way which would largely deviate from budget targets.



"JCR and other Japanese investors should have been having a hard time in guessing the political risks in Turkey," says Emin Yilmaz.



"They are afraid of deflation of financial and economic discipline as Turkey is in the presidential election process, but they are pleasant with the performance of Finance and the Central Bank."



www.aa.com.tr/en - İstanbul