Saudi deposits $5bn in Turkey’s central bank

Reuters

• Deposit from the kingdom will help Turkish economy 
• US is to provide $85m to fund humanitarian efforts after earthquake
• Economists expect inflation to dip to around 40% by May elections

Saudi Arabia has made a $5 billion deposit into the central bank of Turkey to support its economy.

The deposit, first pledged in November, comes after the devastating impact of last month’s earthquake.

It was made on Monday through the Saudi Fund for Development (SFD) and will “contribute to bolstering the Turkish economy by addressing economic aspects across various sectors”, according to a statement.

Scott Livermore, chief economist at Oxford Economics Middle East, said: “This injection will help conserve reserves, which have come under renewed pressure following the quakes.” 

While Turkey’s net foreign exchange reserves rebounded from just over $6 billion last summer, when it was at its lowest in at least 20 years, it has lost some $8.5 billion since the earthquake hit the country’s southern region early in February, killing more than 45,000 people and leaving millions homeless.

• Turkey’s earthquakes revive concerns over industrial heartland
• UAE-Turkey Cepa deal to boost non-oil trade to $40bn

Most countries are providing aid to Turkey in some form to help the economy through the economic repercussions of the earthquake. The World Bank has committed $780 million to help Turkey rebuild its infrastructure and is preparing a further $1 billion in support. 

Vijay Valecha, chief investment officer, Century Financial, said the deposit from Saudi is “highly significant” and comes at a crucial time when the economy is suffering.

“The Turkish economy was already grappling from high inflation, a balance of payments crisis and policy uncertainty in 2022,” he said. “The earthquake that hit Turkey and Syria in February 2023 just added to the long-standing economic woes.”

The deposit was signed between SFD chairman Ahmed Aqeel Al-Khateeb, who is also Saudi Arabia’s tourism minister, and Turkish Central Bank governor Sahap Kavcioglu, according to a statement from the SFD.

The Turkish central bank’s net international reserves fell some $1.4 billion to $20.2 billion in the week to February 24, data from the bank showed last Thursday.

Under an economic programme unveiled in 2021, Turkey aims to shift to a current account surplus through stronger exports and low interest rates, despite soaring inflation and a currency that has tumbled in recent years.

Turkey’s foreign trade deficit widened 38.4 percent year-on-year to $14.24 billion in January, with imports surging 20.7 percent and exports up 10.3 percent.

The Turkish Statistical Institute said imports climbed to $33.61 billion in January, while exports rose to $19.37 billion.

Inflation hit a 24-year high of 85.51 percent in October last year, stoked by a series of unorthodox interest rate cuts, sought by Turkish President Tayyip Erdogan, that began in September 2021 and caused a currency crash late that year.

Economists expect annual inflation to dip to around 40 percent by the time of the May presidential and parliamentary elections, which are expected to be tight according to polls.

On Friday the UAE and Turkey signed a comprehensive economic partnership agreement that is expected to boost the value of non-oil bilateral trade between the two countries to $40 billion in the next five years.