Global Sovereign Conference London 13 September #FitchGSC

Transcription

1 Global Sovereign Conference London 13 September 216

2 Global Sovereign Ratings in 216: A Record Year for Downgrades James McCormack Global Head of Sovereigns

3 Global Sovereign Conference Agenda Introduction Global Sovereign Ratings in Global Economics Brexit Does Not Spark Global Recession Middle East & Africa Commodity Pressures Persist Turkey Sovereign Update Break James McCormack Head of Sovereigns Brian Coulton Chief Economist Jan Friederich Head of MEA Sovereigns Paul Gamble Head of CEE Sovereigns Global Sovereign Panel Moderated by James McCormack 2

4 Global Sovereign Ratings in 216 Rating Trends & Outlooks A record year for downgrades Developed Markets Lower yields but higher debt Emerging Markets Impact of USD and commodity prices 3

5 Sovereign Rating Trends & Outlooks Negative Outlooks Continue to Dominate Developed Markets Emerging Asia Emerging Europe Latin America Middle East & Africa Negative Outlook Positive Outlook Belgium AA Cyprus B+ Taiwan A+ Japan A Israel A San Marino BBB Malta A UK AA Slovenia BBB+ Sri Lanka B+ Philippines BBB- Azerbaijan BB+ Turkey BBB- Croatia BB Macedonia BB+ Russia BBB- Brazil BB Suriname B+ Dom Rep B+ Colombia BBB Costa Rica BB+ Ecuador B Angola B+ Kenya B+ Gabon B+ Namibia BBB- Ghana B S Arabia AA- Iraq B- Tunisia BB- Zambia B Average Ratings by Region DM EM-Asia EM-Europe EM-Latam EM-MEA AA+ AA+ AA AA AA- AA- A+ A+ A A A- A- BBB+ BBB+ BBB BBB BBB- BBB- BB+ BB+ BB BB BB- BB- B+ B Source: Fitch 4

6 Sovereign Rating Trends & Outlooks 216 To Be Record Year for Downgrades Sovereign Upgrades by Category Sovereign Downgrades by Category AAA AA A BBB BB B C/D AAA AA A BBB BB B C/D Source: Fitch Source: Fitch 5

7 Sovereign Rating Trends & Outlooks Movements Toward the Bottom of IG and SG Sovereign Ratings by Category Sovereign Rating Category Shares (%) 35 AAA AA A BBB BB B/C/D 1 9 AAA 3 8 AA A BBB Investment Grade BB B/C/D Speculative Grade Source: Fitch Source: Fitch 6

8 DM Sovereigns Lower Funding Costs in Europe, But Higher Debt 1-yr Government Bond Yields General Government Debt France Germany Italy Portugal Spain France Germany Italy Portugal Spain 16 (%) 14 (%GDP) Source: Datastream Source: Fitch 7

9 DM Sovereigns Debt Dynamics Remain Largely Unfavourable (%) GDP Growth minus Effective Interest Rate (real) Ireland Benchmark Neth'lnds Japan Germany Belgium US UK France Canada Spain Portugal Italy Greece Japan US France Spain UK Neth'lnds Belgium Greece Canada Portugal Ireland Germany Italy Benchmark (% GDP) Primary Balance Real GDP growth is lower than the real effective interest rate Primary balance is in deficit Source: Fitch Source: Fitch

10 DM Sovereigns European Politics Takes Centre Stage Trending Issues and Views Austerity fatigue Euroscepticism/nationalisation Migration/security/integration Political Implications Political fragmentation and polarisation Anti-establishment politics National debates on EU/eurozone membership 217 Elections Other Issues to Monitor France (April/May: President, June: Assembly) Socialist candidate decided December Republican candidate decided November National Front calling for EU referendum Germany (August-October: Parliament) CDU/CSU (Merkel) leads polls, but slipping Greens (left) and AfD (right) gaining ground AfD calling for EU referendum Netherlands (by mid-march: Parliament) Polls led by VVD (leads current coalition) and PVV (rightwing, nationalist) PVV calling for EU referendum Italy (November: Constitutional Referendum) Reduces role of upper house, electoral reform for greater lower house stability PM Renzi may resign if referendum fails Elections due by 218; polls even for PD (Renzi s party) and 5-Star Movement 5-Star calling for eurozone referendum Spain (Third Elections December 216?) 215 election: fragmentation of politics, inability to form coalition 216 election: similar to 215 outcome Third elections possible later this year 9

11 United Kingdom Brexit Brings the Rating Down Brexit Sovereign Considerations Weaker growth outlook amid possibly prolonged legal and regulatory uncertainty PSNB Treasury target revisions: GBP55.5bn (2.9% GDP) for likely to be revised upward (Autumn Statement next update) GBP1bn surplus for abandoned immediately after the referendum Fitch General government debt forecast 89.8% of GDP end-216, and rising in 217 and 218 Only US (1%), Belgium (17%), France (97%) higher in AAA/AA categories; Canada similar to UK (GBPbn) % GDP Public Sector Net Borrowing (12-month rolling) 1% GDP % GDP Source: Datastream 1

12 EM Sovereigns Strong Dollar, Low Commodities Bad for Ratings Commodities and the Dollar US Dollar and EM Sovereign Ratings 225 Global Commodities (25=1) USD Index (RHS Jan'97=1) 9 9. Fitch EMSCI USD Index (RHS Jan'97=1) Stronger USD Lower EM ratings Source: Datastream Source: Datastream, Fitch 11

13 EM Sovereigns Dramatic Deteriorations for EM Commodity Exporters Fiscal Balances Current Account Balances Commodity Exporters Other EMs Commodity Exporters Other EMs (%GDP) (%GDP) Source: Fitch Source: Fitch 12

14 EM Sovereigns FX Reserves Improving, Still Down Year-on-Year Month/Month Change in FXR China Asia (ex China) E Europe MEA Latam Year/Year Change in FXR BOP Effect Revaluation Total USD/EUR (RHS) (USDbn) (USDbn) Source: Datastream, Fitch Source: Datastream, Fitch 13

15 EM Sovereigns No Evidence of Deleveraging Private Non-financial Sector Debt Corporate Debt (%GDP) 22 US Eurozone China (%GDP) 7 Brazil Mexico Turkey Russia Saudi China (RHS) (%GDP) Source: Datastream Source: Datastream 14

16 Politics, Populism and the Global Economy Brian Coulton Chief Economist

17 Key Messages World economy muddling along but global macro risks shifting from emerging markets (EM) to advanced country politics Direct Brexit fallout beyond UK modest, but elevates political risk in Eurozone where economic recovery remains fragile US recovery has weakened and is unbalanced between consumers and producers Income distribution inequalities may be fuelling rise in populism and may have adverse macro impacts Capacity of central banks to restore strong growth limited and focus on fiscal support is increasing EM macro risk easing as Brazil, Russia and commodities stabilise and China remains committed to near term growth target But market concern over renminbi could resurface when Fed hikes 16

18 Brexit Will Take Heavy Toll on UK Investment Index of Policy Uncertainty UK Index Revisions to UK GDP Forecasts % Real GDP Growth Forecasts for /1/97 1/1/1 1/1/5 1/1/9 1/1/13. Fitch Bank of England Post-Referendum (latest) NIESR IMF Bloomberg Consensus Pre-Referendum Source: Economic Policy Uncertainty Source: NIESR, IMF, Bloomberg, BOE, Fitch 17

19 Direct Global Brexit Impact Limited to Eurozone Trade Exports of Goods to UK % Source Country Total Exports Eurozone Trade Balance (Goods) Rolling 12 Month Sum, EUR bn Germany Spain Turkey Eurozone France Poland Italy Switzerland S. Africa US India Canada China Russia Japan Brazil Korea Australia Indonesia Mexico Source: IMF DOTS, Fitch /2/1 15/2/4 15/2/7 15/2/1 15/2/13 15/2/16 With UK Overall Source: EIA, Datastream 18

20 Jobs Growth, Low Oil Prices Help Eurozone Consumers Eurozone Household Income % YOY Eurozone Household Spending % YOY /2/1 1/2/6 1/2/11 1/2/16 Nominal Disposable Income Employment Real Disposable Income Source: National Sources, Datastream, Fitch Q1 24 Q1 26 Q1 28 Q1 21 Q1 212 Q1 214 Q1 216 Bank Loans to Households Consumer Spending (Real) Consumer Spending (Nominal) Source: National Sources, Datastream, Fitch 19

21 But Eurozone Growth Vulnerability Seen in Investment Level of Real GDP Index 27 Q1=1 Level of Real Investment Index 27Q1=1 (Public and Private) Q1 27 Q1 29 Q1 211 Q1 213 Q1 215 Eurozone US UK Japan /2/7 15/2/1 15/2/13 15/2/16 US Eurozone Japan UK Source: National Sources, Datastream, Fitch Source: National Sources, Datastream, Fitch 2

22 Banks Still Crucial For Eurozone Firms Debt Financing Share of Bonds in Corporate Debt* Bonds as % of non-financial firms debt Eurozone Firms Debt Issuance Rolling 4q sum, EUR bn 7% 6% 5% 4% 3% 2% 1% % 1/3/1 1/3/6 1/3/11 1/3/16 US UK Eurozone *Debt excludes trade credit & pension schemes Source: ECB, Fed, ONS, Datastream, Fitch 1, Q1 21 Q1 23 Q1 25 Q1 27 Q1 29 Q1 211 Q1 213 Debt Securities Loans Total Net Issuance Source: ECB, Datastream, Fitch Q

23 US Consumers Still in Good Health Overall US Household Income and Jobs % 3m/3m Annualised /1/14 1/1/15 1/1/16 US Consumption and Saving Ratio % Real Terms YOY, 3mma % Disposable Income, 3mma Real Disposable Income Jobs (Payrolls) Consumer Spending Growth Saving Ratio (RHS) Source: BEA, Datastream, Fitch Source: ECB, Datastream, Fitch 22

24 But US Producers Hit by External Shocks Including Oil US Industrial Production & Exports Real Terms, Jan 211 = 1 US Business Investment Chained 29 US Dollars, Bn /1/11 1/1/12 1/1/13 1/1/14 1/1/15 1/1/16 Industrial Production Export Volumes Source: BEA, Datastream, Fitch 2,25 2, 1,75 1,5 211Q1 213Q1 215Q1 Source: BEA, Datastream, Fitch Business Investment Business Investment exc. Oil Oil Related Capex (RHS)

25 Strong $ and Weakness in US Trade Partners in 215 US Dollar Real Exchange Rate Broad Real Effective Exchange Rate US Exports and Export Markets % Real Growth (Good & Services) /1/73 1/1/79 1/1/85 1/1/91 1/1/97 1/1/3 1/1/9 1/1/ /2/11 15/2/12 15/2/13 15/2/14 15/2/15 15/2/16 US Export Markets (Imports Weighted by Share in US Exports) Growth in US Exports Source: Fed, Datastream, Fitch Source: OECD, Datastream, Fitch 24

26 Labour Share Fall, Inequality Maybe Fuelling Populism Share of Labour Income in GDP Wage Compensation as % GDP US Household Median Income 25=1, Real Terms Eurozone 12 United Kingdom United States Japan (RHS) US Median Household Disposable Income US GDP Per Capita Source: EC AMECO Database Source: US Census Bureau, Nat. Assoc. Realtors, Datastream, Fitch 25

27 Inequality May Have Dampened US Growth US Household Spending & Income by Income Quintile US Household Spending & Income by Income Quintile US Income Inequality % Total Household Income First 2% Second 2% Third 2% Fourth 2% Top 2% Total Average Income Average Consumer Expenditure Bottom 4% Top 2% Source: BLS Consumer Expenditure Survey, Fitch Source: US Census Bureau (Income and Poverty Survey), Fitch 26

28 Rise in US Profit Share Not Recycled Into More Capex US Firms Saving and Investment % US GDP Source: BEA, Fitch Net Lending Saving Investment US Firms Investment/Profit Ratio US Firms Investment/Profit Ratio Capex as % Profits (Non-Financial Business) Source: BEA, Fitch Profits (Post Tax) Gross Fixed Capital Formation Ratio Investment to Profits (RHS)

29 Central Bank Activism Has Averted Outright Deflation US Money, Prices and GDP - 193s 1929=1 Price Level in Advanced Countries CPI Level, Jan 27= Price Deflator Nominal GDP Money Stock (M2) 95 15/1/7 15/1/9 15/1/11 15/1/13 15/1/15 US Eurozone Japan UK Source: BEA, Bureau of Census - Historical Statistics of the US, Fitch Source: BEA, Fitch 28

30 But Fine Tuning With QE is Tricky & Hazardous Bank of Japan Holdings of JGB s BOJ Holdings, % Stock Outstanding JGB s German Bank Net Interest Margins & the Yield Curve Percentage Points /3/9 1/3/11 1/3/13 1/3/15 Source: BOJ, Fitch /1/3 1/1/5 1/1/7 1/1/9 1/1/11 1/1/13 1/1/15 Source: ECB, Fitch Germany Yield Gap (1 Year - 1 Year Yield) German Banks Net Interest Margin on New Household Loans 29

31 Increasing Focus on Fiscal Policy to Support Growth Fiscal Impulse - Change in Cyclically Adjusted Primary Fiscal Deficit % GDP (Positive Value = Fiscal Easing) Germany Spain France Italy United Kingdom United States Japan Source: EC AMECO, IMF Fiscal Monitor, Fitch FC 3

32 Brazil, Russia Signs of Stabilisation after Import Crush Brazil and Russia - GDP Growth % Real GDP YOY Brazil and Russia Net Trade Real Imports Goods & Services, % YoY Contribution to GDP Growth, pps Q1 212 Q1 213 Q1 214 Q1 215 Q Brazil Russia Brazil Net Trade (RHS) Brazil Imports Russia Net Trade (RHS) Russia Imports Source: Rosstat, IBGE, Datastream, Fitch Source: IBGE, Rosstat, Datastream, Fitch 31

33 Commodities Find Floor as Supply Starts to Adjust US Oil Production and Rig Count Number of Rigs 1,8 1,6 1,4 1,2 1, /1/89 1/1/95 1/1/1 1/1/7 1/1/13 US Oil Rig Count Lagged 18 Months Source: Baker Hughes, EIA, Datastream Barrels per Day 9, 8, 7, 6, 5, 4, 3, US Oil Production (RHS) 1, Global Oil Balance Million Barrels Per Day /1/13 15/1/14 15/1/15 15/1/16 Source: EIA, Datastream Inventory Build (RHS) Global Oil Demand Global Oil Supply

34 China Stimulus Fades, But Growth Target Still in Range China : Fixed Asset Investment Nominal, % YOY, 3 m.m.a /1/14 1/5/14 1/9/14 1/1/15 1/5/15 1/9/15 1/1/16 1/5/16 China: Housing Activity and Prices % YOY, 3 mma /1/11 1/1/12 1/1/13 1/1/14 1/1/15 1/1/16 % YOY Source: NBS Datastream, Fitch Manufacturing Infrastructure Real Estate Total (Urban) House Prices (SOUFUN, RHS) Sales Volume Starts Volume Source: NBS, Datastream, Fitch 33

35 China Seeking to Weaken CNY Opportunistically China: Exchange Rate Basket CFETS Basket, Dec 214=1 China Export Performance Volumes, % YOY (Goods & Services) /1/14 1/7/14 1/1/15 1/7/15 1/1/16 1/7/16 Source: PBOC, Datastream, Fitch CFETS Index (Dec 214=1) USDCNY (RHS, inverted scale) USDCNY (inverted scale) Exports/Export Markets (21=1) Source: OECD, Datastream, Fitch Exports Export Markets Export Performance Index (RHS)

36 US Wage Growth Could Surprise Fed & Bond Market US Wages and Import Prices % Labour Force, % YOY Import Prices/CPI (197=1) US Real Bond Yields and Growth % /1/7 1/1/8 1/1/9 1/1/ 1/1/1 8-6 Q Q Q1 22 Q1 212 Relative Import Prices (RHS) Wages Unemployment GDP YOY Real Bond Yield (1 Year, Deflated by Core CPI) ) Source: BLS, BEA, Datastream, Fitch Source: BEA, Datastream, Fitch 35

37 MEA Sovereign Overview Jan Friederich Senior Director

38 MEA Sovereign Overview MEA Ratings Trends SSA Government Debt Trends Nigeria Difficult FX Adjustment Saudi Arabia Stocks and Flows

39 MEA Ratings Sharp Rise in Downgrades Outlooks Tilted To Negative Downgrades Upgrades Positive Stable Negative No Outlook Source: Fitch Ratings. Source: Fitch Ratings. 38

40 SSA Debt is On Upward Trend SSA Median Gen Gov Debt/GDP Rise in Debt/GDP 212 to Source: Authorities, Fitch Ratings. Zambia Cabo Ver. Congo Angola Gabon Ghana Rwanda Kenya Namibia Uganda Cameroon Lesotho South Afr. Cote d'ivo. Ethiopia Nigeria Mozamb Source: Authorities, Fitch Ratings 39

41 Boosting SSA Debt Servicing Costs Median Gen Gov Interest Costs Gen Gov Int/Revenues, SSA median general government interest expenditure/revenues Source: Authorities, Fitch Ratings. Kenya Uganda South Afr. Gabon Angola Cote d'iv. Cabo V Namibia Cameroon Seychell. Mozamb. Rwanda Lesotho Ethiopia Congo Zambia Nigeria Ghana Source: Authorities, Fitch Ratings. 4

42 Debt Amortisation a Challenge, Capex Key Debt Driver SSA Amortisation due Elevated Cent Gov Capex/GDP, SSA ext debt amortisation due (USDbn, ex South Africa) Column Source: World Bank, International Debt Statistics, 214 figures. Rwanda Uganda Lesotho Mozamb. Ethiopia Cameroon Kenya Cote d'iv. Seychel. Gabon Zambia Angola Ghana South Afr. Nigeria Source: Authorities, Fitch Ratings. 41

43 SSA Debt Trends Key Drivers Debt Drivers Commodity Prices Many commodity exporters suffer from sharp declines in commoditydependent fiscal revenues Investment Spending High capital expenditure contributes to high fiscal deficits GDP & FX FX depreciation, nominal GDP decline due to commodity prices boost debt ratios 42

44 Nigeria Low Revenue Key Challenge Gov revenues/gdp (216) General Government Debt Nigeria Uganda Ethiopia Zambia Kenya Ghana Angola Rwanda Mauritius Cape Verde South Africa Namibia Seychelles Lesotho % of GDP (LHS) % of revenues Source: Fitch Ratings Nigeria B Median Nigeria B Median Source: Fitch Ratings 43

45 Nigeria FX Adjustment Remains Incomplete NGN per USD 45 Spot 4 1-y NDF Jan 15 Jul 15 Jan 16 Jul 16 Source: Thomson Reuters. Inflation (% yoy) 2 18 CPI inflation Core inflation Jan 15 Jul 15 Jan 16 Jul 16 Source: NBS, Thomson Reuters. 44

46 Nigeria Key Rating Drivers Nigeria Fiscal Policy Ability to raise non-oil revenues to improve capacity to service debt Oil Oil prices and Niger Delta pacification key for government revenues FX Regime Normalisation of FX regime essential for stabilisation of economy 45

47 GCC Assets are Key Gov Debt/GDP Mostly Low 9 46 Abu Dhabi (AA) Saudi Arabia (AA-) Ras Al Khaimah (A) Kuwait (AA) Qatar (AA) Bahrain (BB+) General government debt/gdp (216) Source: Authorities, Fitch Ratings Sov Net Foreign Assets High Ras Al Khaimah (A) Bahrain (BB+) Saudi Arabia Qatar (AA) Abu Dhabi (AA) Kuwait (AA) Sovereign net foreign assets/gdp (216) -1 Source: Fitch Ratings

48 Saudi Arabia (AA-/negative) Stocks and Flows SAMA Assets declining Fiscal Deficits and Debt SAMA Net Foreign Assets (USDbn, LHS) General government deficit (% of GDP, LHS) Brent crude oil price (USD/bbl, RHS) General government debt (% of GDP, RHS) Source: Saudi Arabia Monetary Agency Source: Saudi Arabia Monetary Agency. 47

49 Saudi Arabia (AA-/negative) Reforms and Liquidity Assets Declining Liquidity Strains Being Felt Objectives for 22 vs Differential 3m SAR-USD deposit rate (ppt) Raise non-oil revenues by SAR37bn (15-2% of non-oil GDP) Lower subsidies by SAR2bn (~1% of non-oil GDP) Personnel expenditure to fall by SAR14bn Sharp adjustment of investment plans Sale of 5% stake of Saudi Aramco (one-off receipts of SAR375bn) -2 Source: Saudi Arabia Monetary Agency. 48

50 Saudi Arabia Key Rating Drivers Saudi Arabia Oil prices Pace of balancing budget depends on oil prices Fiscal consolidation Ambitious reforms can slow asset depletion Politics Impact of Austerity on Social Stability, Geopolitics 49

51 MEA Ratings Credit LTFC/Outlk Credit LTFC/Outlk Credit LTFC/Outlk Abu Dhabi AA/Stable Seychelles BB-/Stable Cabo Verde B/Stable Kuwait AA/Stable Tunisia BB-/Negative Cameroon B/Stable Qatar AA/Stable Cote d Ivoire B+/Stable Egypt B/Stable Saudi Arabia AA-/Negative Lesotho B+/Stable Ethiopia B/Stable Israel A/Positive Nigeria B+/Stable Ghana B/Negative Ras Al-Khaimah A/Stable Rwanda B+/Stable Zambia B/Negative Morocco BBB-/Stable Uganda B+/Stable Lebanon B-/Stable South Africa BBB-/Stable Angola B+/Negative Iraq B-/Negative Namibia BBB-/Negative Gabon B+/Negative Congo, Republic of CCC Bahrain BB+/Stable Kenya B+/Negative Mozambique CC 5

52 Turkey: Economic and Political Risks and Resilience Paul Gamble Senior Director

53 Heightened Risks to Political Stability Coup attempt and government response elevate political uncertainties: Capacity for further disruption from those behind coup Impact of purge of public sector on capacity and continuity Implications for checks and balances Impact on key bilateral relations Longevity of rapprochement between political parties Risks to economic performance and policy making Governance Indicators Percentile rank Reg. Quality Political Stab. Gov. Eff-ness Security conditions have worsened outside of the coup attempt: Multiple serious terrorist attacks Focus of security forces Intervention in Syria Conflict in South East continues Voice & Acc-bility Control of Corruption Rule of Law 'BBB' median Turkey Turkey (21) 52

54 Impact on External Sector Offset by Lower Oil Prices Tourism Revenues (% yoy) Current Account Balance (Rolling 12-month; USD bn) Jan 13 Mar 13 May 13 Jul 13 Sep 13 Nov 13 Jan 14 Mar 14 May 14 Jul 14 Sep 14 Nov 14 Jan 15 Mar 15 May 15 Jul 15 Sep 15 Nov 15 Jan 16 Mar 16 May 16-8 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Source: Turkstat Source: CBRT 53

55 Debt Financed Deficit & Large Financing Requirement Current Account Financing Rolling 12-Month (USD bn) International Liquidity Ratio (%) Jan 12 Apr 12 Jul 12 Oct 12 Jan 13 Apr 13 Jul 13 Oct 13 Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct 15 Jan 16 Apr 16 Russia Philippines 'BBB' Median South Africa Hungary Turkey Net FDI Net Portfolio Net E&O Net MLT debt Reserves Source: CBRT Source: Fitch 54

56 High and Rising Net External Debt Net External Debt (% GDP) Net External Debt/GDP (%) f -4 Russia Philippines 'BBB' Median South Africa Hungary Turkey Sovereign Bank Corporate Source: CBRT, Fitch Source: Fitch 55

57 Questions over Monetary Policy Coherence Interest Rates (%) Inflation (% yoy) Jun 13 Oct 13 Feb 14 Jun 14 Oct 14 Feb 15 Jun 15 Oct 15 Feb 16 Jun 16 O/N Lending O/N Borrowing CBRT Average Funding One-Week Repo 4 Jan 13 Mar 13 May 13 Jul 13 Sep 13 Nov 13 Jan 14 Mar 14 May 14 Jul 14 Sep 14 Headline Nov 14 Jan 15 Mar 15 May 15 Core Jul 15 Sep 15 Nov 15 Jan 16 Mar 16 May 16 Jul 16 Source: CBRT Source: TurkStat 56

58 Fiscal Discipline is Holding Central Government Primary Surplus Program Definition; Cumulative (TRL bn) General Government Balance (% GDP) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec f 217f 218f Source: Undersecretary of the Treasury Source: Undersecretary of the Treasury, Fitch 57

59 Debt/GDP to Remain on Downward Trend Debt Forecasts by Vintage General Government Debt/GDP (%) General Government Debt/GDP (%) f 217f 218f Aug 16 Mar 16 'BBB' Median Turkey Source: Fitch Source: Fitch 58

60 High but Structurally Flawed Growth Real GDP Growth Decomposed (%) 1 Real GDP Growth (%, 5-year average) Q1 213 Q1 214 Q1 215 Q1 216 Consumption Investment Trade Russia South Africa Hungary 'BBB' Median Turkey Philippines Stocks Headline Source: TurkStat Source: Fitch 59

61 Sovereign Rating Drivers Negative Prolonged or deepened political instability, insecurity or geopolitical stresses that undermine economic performance or economic policy credibility Materialisation of stresses stemming from external financing vulnerabilities A reversal in the declining trend in debt/gdp or a worsening of external imbalances Positive A more stable and predictable domestic political and security environment Implementation of reforms that address structural deficiencies in the economy Key Indicators f 217f 218f Real GDP, % change Inflation, % change Current account balance, % GDP Government balance, % GDP Government debt, % GDP Source: Fitch, October 215 BBB-/Negative Latest Review 19 August 216 Affirmed at BBB-; Outlook revised to Negative Next Formal Review January/February 217 6

62 Global Panel: Fitch senior sovereign analysts in discussion on Europe, Middle East and Africa Moderator James McCormack, Global Head of Sovereigns Panellist Brian Coulton, Chief Economist Panellist Jan Friederich, Head of Middle East & Africa Sovereigns Panellist Paul Gamble, Head of Emerging Europe Panellist Ed Parker, Head of Europe, Middle East & Africa Sovereigns

63 Disclaimer Fitch Ratings credit ratings rely on factual information received from issuers and other sources. Fitch Ratings cannot ensure that all such information will be accurate and complete. Further, ratings are inherently forward-looking, embody assumptions and predictions that by their nature cannot be verified as facts, and can be affected by future events or conditions that were not anticipated at the time a rating was issued or affirmed. The information in this presentation is provided as is without any representation or warranty. A Fitch Ratings credit rating is an opinion as to the creditworthiness of a security and does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. A Fitch Ratings report is not a substitute for information provided to investors by the issuer and its agents in connection with a sale of securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch Ratings. The agency does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS AND THE TERMS OF USE OF SUCH RATINGS AT 62

64 New York 33 Whitehall Street New York, NY 14 London 3 North Colonnade Canary Wharf London E14 5GN