Turkey's Credit Rating Crumbles on Moody's Analysis of Political Turmoil

The Turkish government has suffered a blow as the global credit ratings agency Moody's slapped a negative rating on government bonds.

Despite Prime Minister Recap Tayyip Erdogan's victory in local elections, his government has been dogged by scandals throughout the winter.

Moody's said that a combination of domestic scandals and worsening international sentiment towards emerging markets had contributed to the downgrade.

"The adverse impact of the turbulent political and lower global liquidity on both international and domestic investor confidence as illustrated by exchange rate volatility is exacerbating the country's existing external financing challenges," Moody's said in a statement.

Long-term prosperity and stability in Erdogan's Turkey appears to have been threatened after months of leaked recordings, implicating a number of officials with close ties to the leadership in corruption.

After his AK Party won local elections, a defiant Erdogan vowed to pursue "traitors" and make them "pay the price," a reference to those he held responsible for the damaging leaks.

The government has already launched a crackdown on political opponents while the scandals have revealed malpractices that should leave investors extremely worried. Social media websites Twitter and Youtube have been blocked in the past two weeks. Aalthough access to Twitter was restored following a court order, Youtube remains blocked in the country.

Moody's said it expects Turkey's economic growth to slow to 2.5% this year and to reach 3% in 2015, linking flagging growth to the political uncertainty in the country.

"Moody's believes that the uncertain policy environment stemming from the heightened political risk will constrain the momentum of structural reforms needed to reduce the Turkish economy's external vulnerabilities," the agency said.

The downgrade comes on the back of Fitch's BBB- rating earlier this month, which is also the lowest investment-grade rating while Standard and Poor's downgraded Turkey's government to negative status in February this year.

Turkey will hold presidential elections in August when the current Prime Minister is expected to run for the presidency.