S&P warns Istanbul over current account deficit

Rating agency Standard & Poor’s (S&P) on Monday gave Turkey until the end of the year to reduce its current account deficit or risk having its rating frozen at the current level. Although S&P rates Turkey “BB” with a positive outlook meaning Ankara could normally expect to be upgraded in the next month or two, on Monday’s statement suggested there will be no upgrade unless it can persuade S&P that it is doing more to correct macroeconomic imbalances. “The outlook on the ratings is positive,” S&P said in a statement. “We could raise the ratings on Turkey if the economy demonstrates its flexibility by shifting its resources quickly toward net-export-driven growth. This would reduce external imbalances without significantly weakening the fiscal accounts or destabilizing the financial sector.” But S&P warned it would freeze the country’s rating at its current level unless it reduced external macroeconomic imbalances by the end of 2012. It said the imbalances left Turkey vulnerable to external shocks. “A delayed correction, in our view, would increase the risk of reduced access to external funding and could also weaken the government’s fiscal accounts beyond our current expectations,” S&P said.