Saudi Arabia announces $5 billion aid to Turkey

Saudi Arabia plans to deposit $5 billion in Turkey’s central bank. The move is expected to boost Turkey’s currency rate as the country recovers from the devastating earthquake.

The deposit was made through the Saudi Development Fund (SFD) and was announced by the Saudi Finance Minister in December.

“This deposit is a testament to the close cooperation and historic ties that exist between the peoples of the Kingdom of Saudi Arabia and the Republic of Turkey and their brother countries,” the Saudi Development Fund said on March 6. and Governor of the Central Bank of Turkey.

A $5 billion deposit could help boost the Turkish currency’s exchange rate against international currencies. In 2021 the lira against the dollar he fell 44%, and last year he fell another 30%.

The deposit was said to have been made on the orders of Saudi King Salman and Crown Prince Mohammed bin Salman, according to the state-run Saudi Press Agency.

Turkey’s net foreign exchange reserves fell to just over $6 billion last summer. This was his lowest level in 20 years. Reserves have since recovered, but the devastating earthquake that hit the region in February caused further economic strain.

Millions of people were left homeless and thousands died as a result of the earthquake. As of February 24, Turkey’s central bank’s net international reserves fell from $20.2 billion at the time of the disaster to just $1.4 billion.

Economic stress in Turkey

The $5 billion deposit comes at a time when Turkey’s economy is under great strain. The currency crisis at the end of 2021 has sparked inflation, with inflation hitting 85.51% in October, his highest in 24 years. Inflation remains stubbornly high, although it fell to 57.7% in January.

Rising prices for food, housing and other things are putting pressure on Turkish citizens’ budgets.

The February earthquake further complicated the situation. The European Bank for Reconstruction and Development (EBRD) predicts that Turkey will lose up to 1% of GDP this year.

GDP growth has been revised down to 3% from 3.5% in 2023, ignoring the impact of the earthquake.

The EBRD said in a February report that “the earthquake has had limited impact on other sectors, as agricultural and light-industrial areas were heavily impacted.”

Elections, Saudi-Turkish Relations

Rising inflation and earthquakes are putting pressure on Turkish President Erdogan ahead of presidential elections scheduled for May 14.

An earthquake that struck just months before the election put the Turkish government’s lack of disaster preparedness in the spotlight, with some survivors blaming the regime for the delay in rescue efforts.

Some experts see Saudi Arabia’s $5 billion move as an endorsement of President Erdogan.

“I think we now know who MBS wants to win in the Turkish election,” said Timothy Ash, emerging markets strategist at BlueBay Asset Management. I have written In an emailed note, according to CNBC. MBS refers to Saudi Arabia’s Mohammed bin his Crown Prince Salman.

“It is worth noting that the Saudi loan to Turkey is not conditional. policies and/or IMF programs are needed,” the memo said. .

Relations between Riyadh and Ankara were adversely affected after the 2018 killing of journalist Jamal Khashoggi at the Saudi consulate in Istanbul.

Turkey pursued the case vigorously, and President Erdogan blamed the murders on top officials of the Saudi government. However, he never blamed Prince Mohammed for the incident.

Over the past year, President Erdogan has made every effort to strengthen relations. He visited Saudi Arabia last April for the first time since his murder. The two countries also have mutual investment and trade commitments.