“Türkiye's 'B' rating reflects weak external finances, growing economic distortions due to increasingly interventionist and unconventional policies as well as political and geopolitical risks. These factors are set against Turkiye's large and diversified economy, relatively low levels of government debt, and a manageable sovereign debt repayment profile,” Fitch said.

Fitch expects inflation to average 56.5% in 2023, among the highest of Fitch-rated sovereigns.

Fitch forecasts GDP growth slows to 2.5% in 2023, from 5.6% in 2022, with the negative impact of the February earthquakes on economic activity partly balanced by the fiscal and credit stimulus in the run-up to the May elections. We expect growth to increase modestly to 3% in 2024, due to improving external demand and the reconstruction process offsetting a less expansionary policy stance.

Drawing attention to renewed pressure on reserves, Fitch said: “After increasing to USD129 billion in 2022, gross international reserves have again come under pressure, declining to USD120 billion in early March. Although the Saudi Fund for Development recently agreed to deposit USD5 billion at Turkiye's central bank, the international reserve structure remains vulnerable, with the central bank's net foreign asset position significantly negative (minus USD57 billion) when excluding FX swaps. We forecast international reserves to decline to USD105 billion by end-2023, bringing reserve coverage of current external payments to 3.0 months, slightly below the forecast 'B' median of 3.2 months.” (ILKHA)