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It’s swings and roundabouts for the Turkish economy following the country’s major referendum to revamp its constitution, according to rating agency Fitch.

Having already junked Turkey’s sovereign rating on account of its eroding constitutional checks and balances, Fitch said a narrow victory approving the move to an executive presidency on Sunday could prove good news for the slowing Turkish economy.

Turks voted by a slim majority of just 51.4 per cent to introduce sweeping changes to the office of the presidency after 2019, effectively putting an end to the country’s parliamentary system of democracy.

Still, Fitch said the triumph for the ruling AK party could spur the government to get ahead with growth-boosting fiscal policies and undertake vital structural reforms.

“Implementation of reforms that address structural deficiencies and reduce external vulnerabilities is a positive rating sensitivity” said Paul Gamble at Fitch.

The Turkish economy slumped to its worst quarter contraction since the financial crisis in the third quarter of last year but managed to bounce back with robust 3 per cent growth to close out 2016.

In the wake of the referendum triumph, Fitch said the government had gained some political breathing room to avoid early elections and “allow the economy to move back up the ruling AKP’s policy agenda”.

“The AKP has a developed economic reform programme, but little has been implemented in recent years due to the fluid political backdrop, and structural weaknesses (including high net external debt and external financing requirements and poor composition of growth) have become more pronounced”, said Mr Gamble.

The lira has strengthened on the result, gaining 0.4 per cent against the dollar today after a 0.8 per cent leap on Monday.

Copyright The Financial Times Limited 2017. All rights reserved.
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