Fitch warns of risks to credit rating from Turkish government's reaction

The impact of the reaction by Turkey’s authorities to the attempted military coup over the weekend on political divisions in the country and the independence of its institutions would determine whether the country’s sovereign debt ratings came under pressure or not, analysts at Fitch said.

According to media reports referenced by Fitch over 6,000 people had been arrested, including judges and prosecutors, Fitch Senior Director Paul Gamble said in a statement.

“This could put further strains on institutional integrity amid plans to formally increase the powers of the presidency,” Gamble said.

Turkey had long scored low on the World Bank’s measures of governance and political stability, which while not incompatible with the BBB- rating on debt issued by its government did hold the potential to undermine political checks and balances and reduce the scope for structural economic reforms, thus weakening credit worthiness, Fitch said.

“The government was able to regain control of the situation rapidly but the political fallout could refocus attention on Turkey's large external financing requirement if it results in significantly diminished international investor confidence.”

As of 16:03 the yield on the benchmark 10-year Turkish government bond was up by 60 basis points to 7.901%.