Moody's Investors Service has downgraded the Government of Turkey's long-term issuer ratings to Ba3 from Ba2 and changed its rating outlook to negative, concluding the review for downgrade that was initiated on 1 June 2018. The senior unsecured bond ratings and senior unsecured shelf ratings have also been downgraded to Ba3 and (P)Ba3 respectively.

Concurrently, Moody's has downgraded to Ba3 from Ba2 the senior unsecured bond rating of Hazine Mustesarligi Varlik Kiralama A.S., a special purpose vehicle wholly owned by the Republic of Turkey from which the Turkish Treasury issues sukuk lease certificates, and changed its rating outlook to negative.

The key driver is the continuing weakening of Turkey's public institutions and the related reduction in the predictability of Turkish policy making. That weakening is exemplified by heightened concerns over the independence of the central bank, and by the lack of a clear and credible plan to address the underlying causes of the recent financial distress, notwithstanding recent statements by the government. The tighter financial conditions and weaker exchange rate, associated with high and rising external financing risks, are likely to fuel inflation further and undermine growth, and the risk of a balance of payments crisis continues to rise, says Moody's.