Turkey’s risk grade far from safe
Turkey’s risk premium has sharply decreased over the past several months, but an array of economic and political factors threatens to undo the trend.
Turkey’s risk premium has significantly eased since Ankara abandoned a much-criticized interest rate policy to salvage its crisis-hit economy in November, but the downtick could well reverse down the road amid ongoing economic and political issues, including Turkey’s thorny ties with the United States and Europe.
The risk premium — a major indicator that foreign investors consider before putting money in a given country — is reflected in credit default swaps (CDS), which are essentially financial deals that determine the cost of insuring exposure to a country’s sovereign debt. The higher a country’s CDS premium, the higher its borrowing costs, as the CDS premium inevitably adds to the price of borrowed money in addition to interest rates.
