The global credit rating agency Fitch announced it has revised its outlook for the Turkish economy from "stable" to "positive," while maintaining the country's sovereign credit rating at "BB-". This move is a strong indication of the beginning of a restoration of international confidence in Ankara's recent economic policies.
Reasons for revising the outlook
The agency explained in its report that the main driver of this positive revision is the significant improvement in Turkey's external vulnerabilities. This is primarily due to the faster-than-expected increase in foreign exchange reserves, which strengthens the country's ability to withstand external shocks and service its debt. Analysts indicate that this improvement reflects the success of policies aimed at reducing the current account deficit and attracting financial inflows.
Government commitment to tightening policies
In a related development, Turkish Vice President Cevdet Yılmaz affirmed the government's firm commitment to continuing its current economic policies, which rely on monetary and fiscal tightening. In recent remarks, Yılmaz indicated that the ultimate goal is to reduce high inflation rates, explaining that any adjustments to the economic program would be minor and would not affect its core principles, thus sending a reassuring message to investors about the continuity of these policies.
Inflation trajectory and future expectations
The Turkish government and central bank have set ambitious targets to curb inflation, with the government expecting it to fall to 16% by the end of this year, and to single digits (9%) by 2027. Although inflation is still high at 31%, data indicates that it is declining slowly but steadily, as a result of raising borrowing and financing costs, which, although burdensome for companies and households, are necessary to absorb excess liquidity.
Background to the economic transformation (context of the event)
To understand the significance of Fitch's decision, one must consider the recent historical context. Turkey launched its current economic program in mid-2023 after a period of unconventional monetary policies focused on interest rate cuts to stimulate growth at any cost. Those earlier policies led to a severe currency crisis, runaway inflation, and the depletion of the central bank's reserves. The current program represents a return to "orthodox economic policies," relying on interest rate hikes and fiscal transparency to restore the lira's stability.
Importance and expected impact
The revision of the outlook to "positive" carries broad economic implications; it typically represents the first step toward a future actual credit rating upgrade if indicators continue to improve. An improved rating would reduce Turkey's borrowing costs in international markets and encourage foreign direct and indirect investment (hot money) to return to the Turkish market, thereby supporting exchange rate stability and fostering sustainable long-term economic growth.
