Moody’s Keeps Türkiye’s Rating at ‘Ba3’ with Stable Outlook
Moody’s, one of the three major global credit rating agencies, reaffirmed Türkiye’s sovereign credit rating at "Ba3" with a stable outlook. This decision keeps the rating three notches below investment grade. The agency cited Türkiye’s large and dynamic economy and low government debt, which stands at around 25%, as key credit strengths. However, it also noted ongoing institutional challenges and external vulnerabilities.
Policy Tight, but Inflation Pressures Persist
Despite a sharp shift toward orthodox monetary policy, the pace of disinflation has slowed. Inflation dropped from 30.9% in December 2025 and is projected to ease to 22% year-over-year by the end of 2026—above official projections. The agency cautioned that "the risks remain skewed to the upside," citing weak monetary transmission, elevated gold prices boosting domestic demand, and a larger-than-expected minimum wage hike. Real interest rates remain high, reinforcing the central bank’s restrictive stance even as a gradual rate-cutting cycle is underway.
Moody’s Flags Türkiye’s Budget Strains Despite Narrower Deficit
Türkiye’s fiscal deficit is estimated to have narrowed to 2.9% of gross domestic product (GDP) in 2025 from 4.7% in 2024, aided by fiscal consolidation efforts that also supported disinflation. Still, Moody’s sees challenges ahead. With real interest rates remaining elevated and general elections due in 2028, the agency anticipated that "further fiscal adjustment will be more difficult." The government aims to reduce the deficit to below 3% by 2027, but spending pressures, especially interest costs, could pose obstacles to this target.
External Pressures and Dependence on Energy Imports
The country’s large current account deficit at $23.2 billion, low levels of domestic savings, and high dependence on energy imports continue to expose it to external shocks. Moody’s emphasized that reforms aimed at reducing energy import reliance, costing around $60 billion–$70 billion per year, and boosting export competitiveness could bolster resilience, though progress remains uneven.
Outlook Hinges on Reform Path
The stable outlook assumes no reversal of current economic policy ahead of the 2028 presidential elections. Moody’s warned, however, that "a return to policies that would again fuel economic imbalances is a key downside risk," particularly in the form of aggressive credit expansion, high wage growth, or renewed government spending. An upgrade could be considered if reforms improve institutional independence and reduce inflation and external vulnerability. Conversely, the rating could be downgraded if disinflation efforts stall or central bank reserves decline significantly.
Conclusion
In conclusion, Moody’s decision to keep Türkiye’s rating at "Ba3" with a stable outlook reflects the country’s mixed economic performance. While there have been policy gains, risks persist, including inflation pressures, budget strains, and external vulnerabilities. The path forward will depend on the government’s ability to maintain its current policy trajectory and implement reforms to address these challenges. As Fitch Ratings recently upgraded Türkiye’s credit outlook to "positive," there is a sense of cautious optimism about the country’s economic prospects. However, the road ahead will require careful management of economic policies to achieve sustainable growth and stability.
