Moody's downgrades Turkey's sovereign debt rating to 'junk' level

Ratings agency Moody's cut Turkey's long-term issuer and senior unsecured bond ratings by one notch to the speculative or "junk" level of Ba1 with a "stable" outlook late Sept. 23, citing risks related to the country's sizeable funding requirements and slowing down in its GDP growth and institutional strength.

S&P Global Ratings downgraded Turkey in July, following a failed coup attempt in the country, and now only Fitch remains as a major agency keeping Turkey above junk.

Moody's, which had previously delayed its decision, cited two key reasons for the downgrade:

1. The increase in the risks related to the country's sizeable external funding requirements.

2. The weakening in previously supportive credit fundamentals, particularly growth and institutional strength.

The agency said it expects that the deterioration in Turkey's credit rating will continue over the next two to three years.

" Turkey continues to operate in a fragile financial and geopolitical environment and that its external vulnerability has risen, both over the past two years and more recently as a result of unpredictable political developments and volatile investor perception. This has credit implications for Turkey given its dependence on foreign capital. The risk of a sudden, disruptive reversal in foreign capital flows, a more rapid fall in reserves and, in a worst-case scenario, a balance of payments crisis has increased," said the rating agency.

Moody's said a fall in tourism receipts, which represent 4.4 percent of the economy, due to Russia's sanctions last year and a rise in bomb attacks inside the country had weakened its balance of payments.

"More recently, the government's response to the unsuccessful coup attempt...