Prime Minister Tayyip Erdogan suffered a double blow to his authority when Turkey‘s top court annulled part of a law tightening government control of the judiciary on Friday hours after Moody’s cut its rating outlook.

Erdogan has divided opinion at home and unnerved Western governments by removing thousands of police and judiciary officials in a clampdown critics see as an attempt to suppress a corruption scandal.

Cutting its sovereign outlook to negative, the credit agency said political uncertainty in Turkey would weigh on weak points in its economy, notably its high external financing needs, damaging its growth prospects.

“Moody’s expects these tensions in the political arena to persist until at least the second quarter of 2015, when parliamentary elections are due,” the agency said.

Clipping the government’s powers, the Constitutional Court said it had canceled articles in a new law that had granted the justice minister powers over the High Council of Judges and Prosecutors, which makes judicial appointments.

The corruption scandal, which erupted in December with police raids that targeted the sons of ministers and businessmen close to Erdogan, has raised concerns in the West about Turkey’s democratic credentials and presented the prime minister with his biggest challenge during 12 years in power.

Erdogan’s AK Party won local elections on March 30, prompting a rally on markets that viewed the outcome as decreasing political uncertainty

But following the action by Moody’s and the ruling by the Constitutional Court, the lira currency and Turkish shares and bond all lost ground on Friday.

“While the timing of the cut in the outlook on Turkey’s rating is at odds with the recent improvement in sentiment, it’s a reminder, if one were needed, that Turkey remains one of the most vulnerable emerging markets,” said Nicholas Spiro, head of Spiro Sovereign Strategy.

“Although last week’s local elections were preceded and followed by a market rally, the victory of the AKP is merely storing up trouble for the future.”

Following his clear election win, Erdogan declared he would punish those responsible for damaging leaks purportedly showing government officials in wrongdoing, having previously purged thousands of officers from the police force and reassigning hundreds of prosecutors and judges.

The law granting the justice minister extra powers was part of what the prime minister characterises as a campaign to root out a subversive ‘parallel state’.

He accuses U.S.-based Islamic cleric Fethullah Gulen, a former ally whose network of followers wields influence in judiciary and police, of orchestrating a plot to unseat him.

The main opposition Republican People’s Party had asked the Constitutional Court in February to overturn the law, saying it violated the principles of separation of powers and independence of courts.

There was no early reaction from the government to the court’s decision, while Development Minister Cevdet Yilmaz suggested Moody’s had misjudged the political mood.

“With the latest elections, Turkey’s political stability was confirmed once again. This was expected to have positive reflections on credit ratings. It’s what markets say that matters most, Turkey continues on its stable path,” he said.