Moody’s cut Turkey’s sovereign credit rating deeper into “junk” territory on Friday, saying the risk of a balance of payments crisis continued to rise, and with it the risk of a government default. Moody’s downgraded the rating to B1 from Ba3 and maintained a negative outlook.

On the next day, the Ministry of Treasury and Finance stated that this decision contradicts with the basic indicators of the Turkish economy and clouds objectivity of Moody’s analysis.

Moreover, the minister hinted that debt/reserves ratio of developing countries with higher rating than Turkey is too high, while Moody’s said that Turkey’s debts exceeded reserves by 2.6-fold.

Report’s analytical group says that the latest decision was continuation of Moody’s decision to downgrade the rating of Turkey to Ba3 from Ba2 in August 2018. The agency linked it with depreciation of TRY and deterioration of the relations with US and forecasted that all these factors will take the Turkish economy to recession for the first time during past ten years.

Read more:   Justin Trudeau: Details of third blackface incident emerge

The decision made on the background of tension between Turkey and US due to Andrew Branson yielded results.

As a result of depreciation of TRY and increase of discount rates, the economy began to slow. Turkey faced technical recession as a result of the decline in GDP in the third and fourth quarters.

Moody’s latest decision coincides with the period when the relations between Turkey and US deteriorated. Ankara’s purchase of S-400 missile system from Russia was accepted by US as a threat. Consequently, US removed Turkish pilots from F-35 program, Congress began to consider sanctions against Turkey. At the end, Turkish President Recep Tayyip Erdogan said they have already bought S-400 missile system and their supply will start in mid-July and this situation will be discussed with the US President at the G-20 meeting. Regardless of motives, worsening of Turkey’s rating will absolutely lead to real economic results.

Read more:   Failed coup in Turkey will 'Weaken' NATO in the Middle East

Report’s analytical group says that this will firstly appear in country’s expenditures on borrowing. As the credit rating is the paying capacity and risk assessment, its deterioration increases the issuer’s expenditures on borrowing. That’s the higher risk, the higher interests.

Assessment of rating will alarm the investors and manifest itself in the volume of direct foreign investments. This segment is very sensitive to uncertainty in the international relations and assessment of ratings in Turkey. After military coup in 2015 and downgrade of credit rating, the investments in the economy have fallen from $16.5 billion to $12.1 billion in 2016, $7.5 billion in 2017 and $6.5 billion in 2018.