Fitch raises Turkey to investment grade Turkey has been raised to investment grade by Fitch, the rating agency - a move long sought by the country's government and private sector as a means of bringing in more institutional investment. It was the first such rating by one of the big three agencies, the others being Moody's Investors Service and Standard & Poor's. Monday's decision to upgrade the country's long-term foreign debt to BBB- from BB+ is in effect a vote of confidence in Turkish officials" efforts to rebalance the economy away from the breakneck growth of recent years and towards a more export-driven rather than domestic-led demand model. "Fitch believes that the Turkish economy is on track to return to a sustainable growth rate, having narrowed the current account deficit and lowered inflation after overheating in 2011," the agency said in a statement. At some point, an external financing shock and a recession are likely. However, the agency believes the country's strong sovereign, bank and household balance sheets, and economic and exchange rate flexibility provide important buffers against shocks spreading into a wider financial crisis. Ankara hopes Fitch's decision will be followed by the two other big agencies, both of which have Turkey on the verge of investment grade, moves that would allow a wide range of institutions, such as pensions funds, to start investing. Turkish officials also argue that a more steady influx of foreign funds could also make it easier for Turkish corporates to raise funds on the domestic market, helping spur growth. At present, Turkish groups have little capacity to raise long-term debt in domestic currency while even the head of the Istanbul Stock Exchange has commented that the bourse could be more effective in helping companies raise capital. Mehmet Simsek, Turkey's finance minister, welcomed Fitch's upgrade, saying on Twitter that it was the result of political and macroeconomic stability during the current government's decade in office, following years of crisis. "The credit rating upgrade to investment grade will support our growth forecasts and will even increase our growth performance," Mr Simsek said, referring Ankara's plan's for 5 per cent annual growth by 2014, compared with a level of about 3 per cent today. Fitch said that the country was already making big steps towards deepening its local capital market, with the government now relying on foreign denominated issues for less than 30 per cent of its debt. But it added that the country's external finances "remain a key rating weakness," highlighting it expected this year's current account deficit to total $58bn or 7.3 per cent of GDP. The agency said Turkey could be further upgraded if the country experienced "a material and durable reduction in the current account deficit" - although it noted it did not expect this in the near term - or "a track record of lower and more stable inflation." In figures announced on Monday, inflation for the 12 months to October was 7.8 per cent, down from 9.2 per cent in September - a greater-than-expected drop. In a nod to the political tensions facing Turkey over the fighting in its neighbour Syria - with which Ankara has frequently exchanged cross-border fire in recent weeks - Fitch said it was assuming the country would not be drawn into a "full-scale military conflict," an event that could lead to a downgrade. It also assumed that Turkey would not be suspended from its membership in the inter-governmental Financial Action Task Force in an ongoing dispute over Ankara's failure to pass and implement terrorist financing legislation - or that if the country was suspended, that it would "not precipitate countermeasures that materially adversely affect the capacity of Turkish entities to access international financing." In a move that gave Turkey some months to resolve the dispute, FATF agreed last month to suspend Turkish membership effective from February next year. FATF has also sought to distinguish Turkey's membership of the group from its international blacklist, which at present only includes North Korea and Iran, and has helped to isolate both Pyongyang and Tehran.