Moody’s: Turkey is emerging market most vulnerable to financial volatility

Turkey is the most vulnerable economy among all emerging country markets that could be hit by the risks facing the worldand’s financial markets, leading ratings agency Moodyand’s noted on Wednesday.
In a presentation at Moodyand’s 9th Annual Turkey Credit Risk Conference in Istanbul, the agencyand’s Vice President Alpona Banerji said Turkey has the highest exposure to the likely turbulence in the global financial markets because it is still largely dependent on external financing to reduce its current account deficit (CAD).
A possible interest rate hike by the US Federal Reserve would have repercussions on all emerging markets with depreciation in the value of local currencies and growing risk aversion by lenders, yet, Banerji added that other countries have relatively reduced their dependence on foreign funds in recent years, leaving Turkey as the developing country most vulnerable to the anticipated rate hike. Sluggish Chinese growth is also among other risks that pose a threat for the Turkish economy, he added.
Turkey managed to shrink its CAD considerably in the recent period through cheaper energy prices around the world but it is still high, Banerji added.
Also, among all emerging markets, investor confidence has suffered most in Turkey, Indonesia and South Africa, Baneji said.
Stressing that election results have dispelled uncertainty to a great extent, Banerji stated that Moodyand’s will be following the course of inflation and the new governmentand’s response to slow growth rate for a revision in the countryand’s sovereign rating.
The agency, which currently maintains its Baa3 credit rating for Turkey, will update its assessment next month.
As for widely debated structural reforms, the government should focus on measures to boost the saving ratio of Turkish consumers and thereby help to reduce the CAD, Banerji said.
Moodyand’s is not necessarily obliged to change Turkeyand’s rating but, Banerji said the losses in the value of the Turkish lira and slowing growth are imposing downward pressure on the countryand’s rating.
The saving ratio among Turkish consumers in metropolitan areas dropped from 13.2 percent in the second quarter to 12.9 percent in the third quarter of this year, ING Bankand’s recent survey revealed.
An improper response from the Turkish government to the possible Fed hike would also lead Moodyand’s to downgrade the countryand’s rating, Banerji concluded.


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