S&P warns Turkey of worsening budget deficit

S&P warns Turkey of worsening budget deficit

The Standard & Poor’s (S&P) ratings agency has warned that Turkey’s current economic and political situation could aggravate the country’s budgetary deficit.

In a report published on Wednesday, the ratings firm said that Turkey’s budget deficit may reach three percent of gross domestic product (GDP) in 2013 and 2014.

“In Turkey, we consider that the electoral calendar, combined with a weakening growth outlook and a yawning current account deficit, could cause the budgetary deficit to worsen further to nearly 3 percent of GDP in 2013 and 2014,” the report said.

“We see the economic outlook for Turkey as particularly uncertain. A gradual increase in real interest rates and weakening credit growth, in tandem with currency depreciation, points toward material downside risks to our GDP projections for 2013 and 2014 of 3.0 percent and 3.6 percent, respectively,” the S&P added.

The agency also said that Ankara was “particularly sensitive” to plans by the US Federal Reserve to reduce its massive stimulus program, which has caused many investors to rush out of Turkey.

In mid-May, the country succeeded to obtain a second investment grade from credit rating agency Moody, a move that drove Turkish bond yields to unprecedented lows and stock markets to record highs.

In addition to Turkey, rated BBB with a stable outlook, Albania, Macedonia, Serbia, Montenegro, Bulgaria, Romania, Croatia, and Bosnia Herzegovina were also among other states that S&P warned because of their governments’ backsliding on reforms during financial crisis.