Country risk in Turkey is moderate to high with an OECD country credit grade of 5. This is akin to a speculative grade sovereign rating, which indicates a moderate likelihood that Turkey will be unable and/or unwilling to meet its external debt obligations. Indeed, 2018 saw the OECD, Moody’s, Fitch and Standards and Poor’s downgrade Turkey’s credit grade. A large dependency on external finance and the ongoing power struggles between the Islamist Justice and Development Party and the secular elite are cause for concern.
Turkey is ranked 43 out of a possible 190 countries on the World Bank’s ease of doing business scorecard. It has caught up with much of emerging Europe after reforms in numerous categories including trading across borders, paying taxes, and getting credit. But resolving insolvency remains difficult. Corporate and financial information is sometimes not available or sufficiently reliable, which can deter private investors.
The risk of expropriation in Turkey has increased significantly since 2014. From 2016-2017 the Turkish government expropriated over 1000 companies worth more than US$10.7b, mainly due to alleged links with Fethullah Gulen, a religious leader the Turkish government accuses of infiltrating the state with his followers and masterminding various coups.
Turkey scores in the top half on most of the World Bank’s governance gauges, but performs very poorly on ‘voice and accountability’ and ‘political stability and absence of violence’. Its low ranking probably reflects power struggles and constitutional crises that have occurred since the Islamist Justice and Development Party (AKP) came to power in 2002. These power struggles and crises have their origins in the AKP’s attempts to use its popular support to weaken the country’s traditional secular elite: the armed forces, judiciary and media. Indeed, mass arrests following the attempted coup, the ongoing state of emergency and increased centralisation of power has significantly increased political risk in Turkey.