LONDON - Standard and Poor's (S&P), a leading rating organization, raised its long-term local currency rating on Turkey to ''BB-'' from ''B+'' and revised local and foreign currency outlook on Turkey to ''positive'' from ''stable''.
Issuing a statement on Monday, S&P said that the ''B+'' long-term foreign currency rating and the ''B'' short-term foreign and local currency ratings on Turkey were affirmed.
S&P credit analyst Ala'a Al-Yousuf said that the improvement in Turkey's creditworthiness reflected the progress that the government was making on both the economic and political fronts toward restoring durable macroeconomic stability.
Real gross domestic product (GDP) growth should be close to the target of 5 percent in 2003 and 2004 and consumer price inflation had slowed markedly and could decline to 12 percent by year-end 2004, but the Central Bank had not yet deemed the circumstances right to announce the adoption of formal inflation-targeting, it said.
S&P said that on the external side, the current account was expected to record wider deficits of about 2.50-2.75 percent of GDP in 2003 and 2004, but exchange rate flexibility and the comfortable cushion of official international reserves (34 billion U.S. dollars) significantly mitigated the risk of another crisis.
The public sector's net external debt was projected to continue declining as a ratio of current account receipts, to about 70 percent by year-end 2004 from an estimated 75 percent at year-end 2003, it stressed.
In view of its domestic political and economic reforms, as well as its contribution to efforts to resolve the Cyprus issue, Turkey had gained public support from several high-level EU politicians for its request of a firm commitment to start pre-accession negotiations.
The ratings on Turkey remained constrained by high implementation risks, still high public sector debt and limited fiscal flexibility, and high real interest rates, it said.
It said it expected the public sector net debt to remain high at about 65 percent of GDP by year-end 2004.
Forward real interest rates on government debt had declined sharply over the past 12 months, but were still estimated at 8-10 percent and further reductions would be more difficult to achieve and would depend on a continuation of current policies beyond the expiry of the IMF-supported program at year-end 2004.
Ala'a Al-Yousuf concluded, ''the positive outlook reflects the prospects for an upgrade if the government makes further progress on stabilizing and reforming the economy; makes clear its commitment to such strong policies beyond 2004; and makes further progress in qualifying for accession talks with the EU.''
BB(-) rating proves that there have been positive developments in a country's borrowing repayment capacity.
(MS) 08.03.2004