Fitch Ratings recently affirmed Turkiye’s long-term issuer default ratings at ‘BB minus’ with a stable outlook.
It forecast GDP growth in the country would slow by 0.8 pp this year to 2.8 per cent, before accelerating to 4.4 per cent in 2027.
Fitch projects inflation will fall from 32 per cent in June to 29.5 per cent at end-2026 and 18 per cent at end-2028, still the highest of any sovereign it rates.
Fitch projects inflation will fall from 32 per cent in June to 29.5 per cent at end-2026 and 18 per cent at end-2028, still the highest of any sovereign it rates. Inflation expectations remain elevated, adding to risks that any sharp policy easing severely worsens inflationary, macro and external pressures.
The ratings are supported by Turkiye’s low government debt, large and diversified economy, high GDP per capita relative to the ‘BB’ peer group median, its record of sustaining access to external financing through periods of stress and resilient banking sector, the credit rating agency said in a press release.
Key rating drivers are elevated inflation, maintenance of moderately tighter policy, foreign exchange (forex) reserves below peer median, policy risk ahead of elections, relatively high external financing requirement, low government debt and political and geopolitical risks.
The Central Bank of Turkiye’s (CBRT) 300-basis point increase in the cost of funding and recent tightening of credit caps have helped support a partial recovery in international reserves, following large forex interventions to stabilise the lira early in the US-Iran conflict.
Fitch Ratings projects gross forex reserves will end 2026 slightly above the current level, at $167 billion, $17 billion higher than the March trough but almost $45 billion below the pre-war position. Net foex reserves, excluding swaps, have similarly fallen, to $43 billion, albeit still well above the 2024 low of minus $66 billion.
The decline in reserves was driven by non-resident capital outflows and the lower gold price, and CBRT has boosted liquid reserves through near $20 billion of gold sales and swaps. Fitch forecasts the country’s current account deficit (CAD) will widen by 1.1 percentage points (pps) in 2026 to 3 per cent of GDP on weaker energy and tourism balances, and remain at that level in 2027 due to stronger imports.
Fitch Ratings anticipates a moderate stimulus ahead of elections. This includes a lower but still positive real policy interest rate, temporary fiscal easing and credit stimulus, but not a return to highly unorthodox policy. Nevertheless, we see sizeable downside policy risks, given Turkiye’s history of destabilising shifts to excessive easing.
It forecasts the general government deficit to increase by 0.2 pp in 2026 to 3.3 per cent of GDP due to fuel price support and higher debt service, and further to 4 per cent of GDP in 2027 on pre-election social spending. General government debt is projected to rise only marginally to 25 per cent of GDP in 2028, less than half the ‘BB’ median of 51 per cent.
Fibre2Fashion News Desk (DS)
