Rated by Fitch Ratings, the annual report regarding 8 metropolitan municipalities including Izmir Metropolitan Municipality, was published in January. Following Turkey closely after the country’s credit rating points had been decreased in 3rd of December 2021, Fitch Ratings has assessed how 8 Metropolitan Municipalities would be affected from the country’s economy. Confirming that it gave the AAA to Izmir Metropolitan Municipality which is “the highest national credit point”, the international credit rating organization stressed the dynamic economy, steady budget performance and cautious finance management of Izmir Metropolitan Municipality in its scenario report.
Mayor Soyer: “We have the highest credit point”
Tunç Soyer, Mayor of Izmir Metropolitan Municipality, reacted to the deliberately distorted interpretations of these proud statements in the report. Underlining that they have and continue to preserve the AAA degree, the highest credit rate which can be attained from Fitch Ratings in national level, Soyer expressed “As emphasized in the report, metropolitan municipalities in Turkey cannot borrow cheap and long-term from local markets for their high-cost large projects. Unfortunately, as Izmir Metropolitan Municipality, we have not been able to get project financing support from the Bank of Provinces until today. Therefore, we have to pay our debts in foreign currency.
We have reduced the risk by fixing the interest rate
Stating due to the deficiencies in the relevant legislation, as mentioned in the report of Fitch Ratings, they cannot “hedge Euro risk”, Mayor Soyer expressed “We reduce our risk somewhat by fixing the interest rate. In addition, thanks to our debt repayment risk accounts, we provide assurance to the institutions we work with for the repayment of debt. We are the only municipality that implements this in Turkey.
The only solution for big projects is international financing
Emphasizing that the total debt, which was 790 million Euro at the end of March 2019, increased to 875 million Euro at the end of 2021 and there was only a 10.25 percent increase in the Euro-denominated debts of the Izmir Metropolitan Municipality, Mayor Soyer stated this increase was due to investments in metro, ferryboat, tram and İZSU infrastructure projects. Soyer said “Exchange rate of Euro has increased by 2.5 times since I took up this position. Thus, debt load in Turkish Lira has increased. Our historical projects such as the Buca Metro will undoubtedly increase our debt burden, but considering the grace period and long-term credit structure, we consider it to be manageable when we look at our debt repayment projections and the steadiness of our financial structure. As a result, if we want to invest in a large amount to create a liveable city, unfortunately, there is no other way than to get international financing today.
Tunç Soyer, Mayor of Izmir Metropolitan Municipality continues as: “As of today, our legal borrowing capacity has not been exceeded. Considering the ratio of our debt to our budget, which is a significant financial indicator, we can pay our total debt with our one-year income.”
The steady structure we have will be built in Turkey, too
Tunç Soyer, Mayor of Izmir Metropolitan Municipality, said “We are neither responsible for the poor management of the country’s economy, nor are our citizens struggling to make a living. However, all our institutions and our people are paying the cost of the wrong monetary policies carried out by the government, unfortunately. Nonetheless, Izmir Metropolitan Municipality is tall in the saddle. This is confirmed by the international organizations’ scientific reports. We believe that the steady fiscal and financial structure will be built in Turkey, too.”
Which statements are there in the report?
In the report, which includes the criteria used in the assessments of 8 metropolitan municipalities rated by Fitch Ratings, it was underlined that the most significant criterion for evaluating the debt sustainability of municipalities is the repayment rate. In the report it is expressed that Izmir Metropolitan Municipality has a debt sustainability in the AAA category, thanks to its stronger repayment capacity under 5 times and a solid current debt service capacity resulting from stronger operating balances.
Stating that 82.1% of İzmir’s total debt is in euro, Fitch Ratings stated that the foreign currency risk has been alleviated owing to its long debt maturity, 7.2-year weighted average maturity and full depreciation profile. Fitch Ratings also underlined that 87.9 percent of the debts of Izmir Metropolitan Municipality have fixed-rate, reducing the interest rate risk of Izmir.
The report expressed that capital expenditures constituted 54 percent of Izmir's total expenditures and that the majority of these capital expenditures included the construction of metro lines.
Fitch Ratings report stated that Izmir is the Metropolitan Municipality that provides a net contribution to Turkey’s tax payment system yet its shares are lower than other metropolitan municipalities.
The report emphasized that there is a strict approval process of Turkey’s treasury to make an external borrowing. It was also expressed that all metropolitan municipalities could not be protected from risks in their foreign currency borrowings due to regulatory deficiencies arising from the legislation.
The report, which mentions that municipalities in Turkey goes through significant risks such as debt and liquidity management, unprotected foreign exchange risk, shorter debt maturity profiles, and mostly unprotected variable interest rate debt, stressed that Metropolitan Municipalities are not able to provide cost-effective and long-term financing to large public investment projects, and this situation has led Metropolitan Municipalities to benefit from international finance and capital markets.
Expressing that the Bank of Provinces is called as the credit bank of municipalities in Turkey and this organisation has to approve the financing for projects of the municipalities, Fitch, the credit rating organization, the Bank of Provinces has restricted financial support for capital intensive projects such as metro lines due to limited funding.