Moody's reviews Turkey for downgrade after failed coup

Sovereign debt rater Moody's said Monday it was reviewing Turkey's credit rating for a possible downgrade after the attempted military coup on the weekend.

A one-notch downgrade from the current Baa3 rating would push the government's rating down into "speculative" or junk status.

"Despite the coup's failure, Moody's considers its occurrence a reflection of broader political challenges, as associated credit risks remain elevated," Moody's said.

"We believe that the most recent increase in domestic political uncertainty, and most specifically the attempted coup, has the potential to significantly affect the country's growth trajectory negatively, a risk that we will evaluate during the review."

Moody's said the country has moved slower than expected on implementing economic reforms and that the growth outlook has weakened, with a forecast of 3.0 percent for this year, down from 3.5 percent last year.

The country is heavily dependent on external funding for the government and private sector, a reliance that "continues to expose the country to sudden shifts in investor confidence."

Fitch, another of the three top rating agencies, said Monday that the attempted coup and the harsh crackdown afterwards by the government of President Recep Tayyip Erdogan "highlight political risks to the country's sovereign credit profile."

"Whether this translates into sovereign ratings pressure will depend on the extent to which the government's reaction deepens political divisions and weakens institutional independence. This could undermine policy coherence and heighten the risks that external financing stresses materialise."

Fitch currently rates Turkish sovereign debt at "BBB-", one step above "speculative." Fitch said its next review of Turkey is scheduled for August 19.