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Investing.com -- S&P Global Ratings reaffirmed its ’BB-/B’ foreign and local currency long- and short-term sovereign credit ratings on Turkiye on April 25, 2025. The agency also confirmed its ’trAA+/trA-1+’ long- and short-term national scale ratings. The outlook remains stable, reflecting balanced risks to Turkiye’s economy, despite recent social and economic pressures.
The affirmation of the ratings comes in the wake of the imprisonment of opposition leaders on March 23, 2025, which triggered protests, increased corporate demand for foreign currency, exchange rate volatility, and an estimated $24.4 billion decrease in usable foreign currency reserves over the past month. The central bank’s net foreign asset position dropped to $32.8 billion as of April 17 from $61.7 billion over the same period.
Despite these challenges, Turkiye’s economic team is expected to respond by implementing policies to stabilize the exchange rate, reduce inflation, stabilize foreign currency reserves, and rebalance the economy over the next 24 months. This was evidenced by the repo-rate hike on April 17.
The stable outlook is based on the expectation that the current economic team will continue with a tight monetary policy, balancing risks associated with the government’s medium-term program amid domestic and external tensions.
The rating could be lowered if pressures on Turkiye’s financial stability or public finances were to escalate, potentially in connection with ongoing currency depreciation, a reversal of anti-inflationary policies, and declines in net foreign currency reserves. On the other hand, the rating could be raised if there is further progress in reducing inflation to single digits, restoring long-term confidence in the Turkish lira, and in domestic capital markets.
Despite recent currency volatility and a decline in foreign currency reserves, Turkiye’s authorities are continuing to pursue policies to reduce high inflation and decrease the dollarization of the economy. The recent protests against the March 23 incarcerations of opposition leaders, however, could be a long-term obstacle to investor and household confidence, currency stability, and growth.
The recent appreciation of the real exchange rate could impact export activity, which is why the 2.7% GDP growth forecast is subject to risks, as investment spending is expected to fall and unemployment to rise. Despite these factors, Turkiye’s rating benefits from several underlying strengths, including a resilient private sector, a diversified export base, and favorable demographics.
The country’s institutional settings are considered weak, with the executive branch holding significant powers under the 2017 constitution. No general elections are expected until 2028. However, some deputies within the current AKP-MHP governing coalition are calling for President Erdogan to serve a fourth term. To do so would require the support of 360 of the 600 members of parliament, which is 40 more than the number of governing coalition’s members of parliament.
Turkiye’s private sector has historically demonstrated resilience to a series of external and domestic shocks. The most recent one is the U.S. administration’s decision to impose 10% tariffs on most of its trading partners, as well as 25% on steel exports. The impact of this on net exports will subtract an estimated 0.7 percentage points from GDP growth this year, implying headline GDP growth of just 2.7%.
For 2025, an accruals-based general government deficit of about 4% of GDP is projected, though a higher figure in cash terms. Short-term external debt, including trade financing and deposits, remains elevated, but Turkiye’s net external financing needs have subsided notably since year-end 2023. Despite recent currency pressure, the overall dollarization rate of the deposit base has remained fairly stable at 42% of the total so far as of April 10.
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