Fitch upgrades Turkiye's outlook to positive, keeps BB minus rating

The country’s large and diversified economy and low government debt continue to support the rating, it said.

The decision reflects "a further reduction in external vulnerabilities," driven by faster-than-expected foreign exchange reserve growth, improved reserve quality, a decline in foreign-currency contingent liabilities and continued relatively tight macroeconomic policies, the credit rating agency noted.

Gross foreign exchange reserves rose to $205 billion in mid-January this year from $155 billion at the end of 2024, while net reserves, excluding swaps, recovered to $78 billion from minus $66 billion in March 2024.

“We project gross reserves end 2027 at 4.4 months of current external payments, down from 4.6 at end-2024 and below the 'BB' median of 5.1 months,” it said in a release.

Noting an improving external financing position, Fitch projected external liquidity to rise to near 100 per cent in 2027 from 80 per cent at end-2024, backed by the country's track record of sustaining access to external financing and a resilient banking sector.

Fitch projects monetary policy to remain relatively tight at end-2026, with a real policy interest rate of 4.5 per cent, before loosening to 2 per cent at end-2027.

“We assume stimulus ahead of elections that includes higher fiscal transfers, minimum wage hikes, and easing of credit caps, but not a return to ultra-loose, highly unorthodox policy as seen in 2022/2023,” it said.

However, there are sizeable policy downside risks, given weaknesses in Turkiye's monetary policy framework, including a lack of independence, it added.

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