Credit ratings agency Moody's Investor Service has downgraded Turkey's sovereign credit rating to non-investment grade citing worries about the rule of law following an attempted coup, risks from external financing and a slowing economy.

The agency, which cut the government's long-term issuer and senior unsecured bond ratings debt to Ba1 from Baa3, kept Turkey's outlook as stable, saying its ‘flexible’ $720 billion economy and strong fiscal track record offset the balance-of-payments pressure it faces.

Moody's decision followed a reduction to two notches below investment grade by S&P Global Ratings in the immediate aftermath of the coup in July. Fitch Ratings is the only major ratings agency that has Turkey as investment grade. Fitch will review its assessment of Turkey at the beginning of 2017.

President Recep Tayyip Erdogan has criticised the rating agencies for being politically motivated. He accused S&P of siding with the coup plotters after its move in July.

The Moody's rating cut may mean Turkey will have to pay more to borrow money on international markets.

‘The drivers of the downgrade are ... the increase in the risks related to the country's sizeable external funding requirements (and) the weakening in previously supportive credit fundamentals, particularly growth and institutional strength,’ Moody's said in an e-mailed statement following the review it initiated after the failed coup.

‘The government's response to the unsuccessful coup attempt raises further concerns regarding the predictability and effectiveness of government policy and the rule of law.’

Deputy Prime Minister Nurettin Canikli said Moody's had turned a blind eye to reforms and steps the government has taken to boost growth and savings.

‘Despite all of the global and regional risks, the Turkish economy's pace of growth is among the top five economies,’ he said in a statement.

Gross domestic product slowed to 3.2 percent growth in the second quarter. Turkey may cut its official target for 4.5 percent GDP growth this year as the impact of the coup attempt takes its toll on the economy.

Moody's said it expects Turkey's GDP to grow an average of 2.7 percent in the next three years, compared with 5.5 percent in the first four years of this decade.

Turkey declared a state of emergency after the coup and tens of thousands of civil servants and soldiers suspected of links with the US-based cleric Fethullah Gulen, whom the government accuses of masterminding the coup, have been detained.

‘The large-scale suspensions in the civil service raise doubts over the capacity of Turkey's policy-making institutions to make meaningful further progress in both legislating and implementing the reform program,’ Moody's said.

Measures taken against businesses suspected of ties to the Gulen movement are likely to harm growth because they raise worries about the protection of private investment and the investment climate in general, the ratings agency said.