International credit rating agency Fitch Ratings announced that it has revised the outlook on Turkey's long-term foreign currency issuer default rating to positive from stable, affirming the sovereign rating at 'BB-'.
In Fitch's view, the revised outlook reflects a faster-than-expected strengthening of external buffers. Gross foreign exchange reserves surged to $205 billion by mid-January, while net reserves excluding swaps recovered to $78 billion, helped by the unwinding of swap positions and improving reserve quality.
De-dollarization and liquidity trends are improving
Fitch noted that the dedollarization trends observed since 2023 have largely continued. Foreign currency deposits and currency protected deposits fell to 39 percent of total deposits, while the currency protected deposit scheme was wound down. External liquidity conditions are also improving and are projected to approach 100 percent by 2027, although they remain below the 'BB' rating median. At the same time, short-term external debt maturities remain a vulnerability.
Policy confidence and fiscal performance are strengthening
The agency said policy confidence has improved and monetary policy is expected to remain relatively tight until 2026 before being moderately eased in 2027. Fitch does not expect a return to the highly unorthodox policy stance seen in 2022-23.
Fiscal performance also improved.
