Saudi Arabia will be depositing $5 billion in Turkey’s central bank, a move expected to boost Turkish currency rates as the country recovers from a massive earthquake.
The deposit will be made via the Saudi Fund for Development (SFD) and was announced by the Saudi finance minister in December.
“This deposit is a testament to the close cooperation and historical ties that exist between the Kingdom of Saudi Arabia and the Republic of Turkey and its brotherly people,” the Saudi Fund for Development said on March 6. The agreement was signed between the SFD chairman and the governor of the Turkish Central Bank.
The $5 billion deposit could help boost the Turkish currency’s exchange rate against international currencies. In 2021, the lira fell by 44 percent against the dollar, declining further by 30 percent last year.
The deposit is said to have been made on the order of Saudi Arabia’s King Salman and Crown Prince Mohammed bin Salman, according to the state-run Saudi Press Agency.
Turkey’s net foreign exchange reserves had fallen to just over $6 billion last summer, which was the lowest level in two decades. Though reserves rebounded since then, the massive earthquake that hit the region in February caused additional economic strain.
Turkish Economic Stress
The $5 billion deposit comes as Turkey’s economy is under huge strain. A currency crisis at the end of 2021 triggered rampant inflation, with the inflation rate hitting a 24-year high of 85.51 percent in October. Though it eased to 57.7 percent in January, the inflation rate continues to be stubbornly high.Rising prices of food, housing, and other items have weighed down the budgets of Turkish citizens.
The earthquake in February has complicated the situation further, with the European Bank for Reconstruction and Development (EBRD) predicting Turkey to lose up to 1 percent of GDP this year.
GDP growth has been revised down to 3 percent from 3.5 percent in 2023, without accounting for the impact of the earthquake.
Election, Saudi–Turkey Relations
The elevated inflation and earthquake have put pressure on Turkish President Tayyip Erdogan ahead of the presidential elections due on May 14.The earthquake, which came just months ahead of the election, put the spotlight on a lack of disaster preparedness of the Turkish government, with some survivors blaming the administration for its delayed rescue attempts.
Saudi Arabia’s move to grant $5 billion is seen by some experts as an endorsement of Erdogan.
“Notable that Saudi lending to Turkey comes with no strings attached—interesting given that it’s lending to other distressed credits, like Pakistan, Egypt, Tunisia, Bahrain comes with the requirement now for good macro policy and/or IMF programmes,” the note said.
The ties between Riyadh and Ankara were negatively affected following the 2018 murder of journalist Jamal Khashoggi in the Saudi consulate in Istanbul.
Turkey strongly pursued the case, with Erdogan pinning the blame for the murder on the top echelons of the Saudi regime. However, he never blamed Prince Mohammad in the incident.
Over the last year, Erdogan has pushed hard to strengthen ties. In April last year, he visited Saudi Arabia for the first time since the killing. Both nations have also pledged investment and trade with each other.
