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Islamic International Rating Agency Affirms Turkey's BBB- Forex Rating, Stable Outlook

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Islamic International Rating Agency (IIRA) has maintained the long-term foreign currency ratings of Turkey at "BBB‐" and local currency ratings at "BBB" on the international scale with a "stable" outlook.

In the short term, both the country's foreign and local currency ratings have been affirmed at "A3", according to a press release on Friday.

"The current ratings on Turkey are supported by its sustained domestic demand, ongoing economic reform, a well developed social infrastructure and as a member of the G20 and the OECD, its strategic importance to the region," the rating agency said.

IIRA noted that the Turkish economy's growth performance witnessed a deceleration last year but it remained "fundamentally sound".

"The current account deficit in 2016 remained narrow compared to prior historical levels, benefiting from declining import bill on account of lower oil prices which largely offset the significant drop in tourism-related activity and marginal decline in overall merchandise exports," IIRA said.

"We expect continuing improvement in diplomatic and trade relations with key trade partners, with positive implications for tourism revenues and exports in 2017."

The agency also pointed out the country's "robust" financial system with a "healthy" banking sector characterized by "strong capitalization and sustained profitability".

According to the Turkish Statistical Institute, Turkey's GDP, which grew by 2.9 percent last year, was around 2.59 trillion Turkish liras (some $856.8 billion) in 2016, compared with 2.34 trillion Turkish liras (around $861.5 billion) the previous year.

The decline in terms of U.S. dollars was due to harsh headwinds the Turkish lira encountered last year. The U.S. dollar/Turkish lira exchange rate was 3.02 on average last year while one dollar was traded for 2.71 liras in 2015.

The lira has witnessed harsh foreign exchange rate fluctuations in the recent months. Dollar/lira rate, which was at 3.68 on Friday, saw a historic hike -- around 3.94 liras -- in mid-January this year.

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