International credit ratings agency Fitch Ratings has announced that it has revised the outlook on Turkey’s long-term foreign-currency issuer default rating to positive from stable, while affirming the sovereign rating at ‘BB-’.
According to Fitch, the outlook revision reflects a faster-than-expected strengthening of external buffers. Gross foreign-exchange reserves rose sharply to $205 billion by mid-January, while net reserves excluding swaps rebounded to $78 billion, supported by the unwinding of swap positions and an improvement in reserve quality.
De-dollarization and liquidity trends improve
Fitch noted that the de-dollarization trends observed since 2023 have largely held. Foreign-currency and FX-protected deposits declined to 39 percent of total deposits, while the FX-protected deposit scheme has been wound down. External liquidity conditions are also improving and are projected to approach 100 percent by 2027, although they remain below the median of ‘BB’-rated peers. At the same time, short-term external debt maturities continue to pose a vulnerability.
Policy credibility and fiscal performance strengthen
The agency stated that policy credibility has improved, with monetary policy expected to remain relatively tight through 2026 before easing modestly in 2027. Fitch does not assume a return to the highly unorthodox policy stance seen in 2022-23.
Fiscal performance has also strengthened. The general government deficit narrowed to around 2.9 percent of GDP in 2025, while public debt is projected to remain low at approximately 25 percent of GDP by end-2027. Fitch added that the share of foreign-currency-denominated public debt is expected to decline over the same period.
Inflation and governance remain key constraints
Despite the improved outlook, Fitch highlighted persistent constraints. Inflation remains elevated and is projected to fall to 19.5 percent by the end of 2027. Governance indicators remain weak, reflecting risks of political interference, limited central bank independence and subdued World Bank governance scores.
Political and geopolitical risks also persist, particularly in the run-up to elections, although Fitch noted some easing in regional security risks.