Saudi Arabia has finalized an agreement to deposit $5 billion at the Turkish central bank, a move that is expected to provide a major boost for President Recep Tayyip Erdogan’s struggling economy.
The deal was announced on Monday by the Saudi Fund for Development, which said it was part of its efforts to support Turkey’s recovery from a series of devastating earthquakes that hit the country last month.
Turkey Earthquake and Inflation
The earthquakes killed more than 50,000 people and caused widespread damage to infrastructure and buildings, adding to Turkey’s economic woes.
Turkey has been grappling with high inflation, low-interest rates, a weak currency and a widening current account deficit for years. The Covid-19 pandemic has also taken a toll on its tourism and trade sectors.
The Turkish lira has lost more than 40% of its value against the US dollar since the start of 2022, reaching a record low of 18.9 per dollar in February.
The Saudi deposit is expected to help stabilize the lira and ease Turkey’s external financing needs. It will also increase Turkey’s foreign exchange reserves, which have fallen below $100 billion in recent months.
The deposit will be made in US dollars and will have a maturity of one year with an option to extend for another year. It will carry an interest rate of 3%, which is lower than Turkey’s benchmark rate of 15%.
Turkey Saudi Arabia Mending Ties
The deposit is also seen as a sign of improving relations between Saudi Arabia and Turkey, which have been strained by political and regional disputes.
The two countries have been at odds over issues such as the murder of Saudi journalist Jamal Khashoggi in Istanbul in 2018, Turkey’s support for Qatar in its rift with Saudi Arabia and its allies, and their diverging views on conflicts in Syria, Libya and Yemen.
However, both sides have recently expressed their willingness to mend ties and enhance cooperation. In January, Erdogan said he wanted to “turn a new page” with Saudi Arabia after holding a phone call with King Salman bin Abdulaziz Al Saud.
Saudi Arabia is also reportedly considering lifting its informal boycott of Turkish goods that has hurt Turkish exporters since 2019.
While the Saudi deposit is undoubtedly a welcome relief for Erdogan, it may not be enough to save his economy from deeper problems.
Turkey needs more structural reforms and sounds monetary policies to address its chronic imbalances and restore investor confidence.
Moreover, Erdogan faces growing domestic challenges from his political rivals ahead of presidential and parliamentary elections scheduled for 2023.
His popularity has declined due to his handling of the economy and the pandemic. He also faces competition from former allies who have formed new parties or joined forces with opposition groups.
Therefore, while Saudi Arabia’s $5 billion may help Erdogan weather some storms in the short term, it may not be enough to secure his long-term survival.