Event

A group of soldiers tried to seize power in Turkey on 15-16 July. The plotters were rapidly arrested and the situation was quickly under control. Following the failed coup, the government declared the ‘state of emergency’ and suspended, detained or placed under investigation thousands of people from the army, the judiciary, the media and the education system, and other sectors. The Turkish government claims that Mr Fethullah Gulen – a former ally of Mr Erdogan who turned into his arch enemy – was behind the plot.

Impact on country risk

The failed coup adds to the economic and political uncertainties in a country where insecurity has been on the rise since mid-2015. Indeed, tourism receipts – which represent more than 10% of current account revenues and have already been under pressure due to the rising insecurity – are likely to fall further, which will weigh on the current account deficit and GDP growth. Moreover, investor confidence is likely to deteriorate which could hurt the country’s capacity to roll over its short-term external debt and delay investment decisions. S&P already decided to downgrade Turkey’s foreign currency long-term sovereign credit rating to BB with a negative outlook on 20 July. The likely deterioration of investor confidence is of particular concern for Turkey given that the country finances its current account deficit by short-term capital flows and as the short-term debt to current account receipts ratio has nearly doubled since 2009. What is more, the Turkish lira depreciated again (cf. graph) which jeopardises the creditworthiness of companies with large liabilities denominated in foreign currencies.

Graphe_RMAugust2016

Analyst: Pascaline della Faille, p.dellafaille@credendogroup.com