Saudi Arabia issues $5 billion to Turkey's central bank
The agreement was signed in Ankara, the Ottoman capital, between the chairman of the board of directors of the Saudi Fund for Development, Ahmed bin Aqil al-Khatib, and the governor of the Central Bank of Turkey, Shihab Kavji Oglu. While no details regarding the term of the deposit or the expected date of the deposit were provided, the memorandum explains how the agreement will help strengthen the Turkish economy by supporting the boosting of key sectors of the country's economy. According to Bloomberg Economics, 2022 was a difficult year in terms of currency values and the depreciation of the lira (Turkish currency).
Relations between Riyadh and Ankara are growing by leaps and bounds. The Saudi Fund for Development stressed that the deposit is presented as "an extension of the historical relations and close ties of cooperation that bind the Kingdom of Saudi Arabia to the Republic of Turkey and its brotherly people". Data indicated that the central bank spent about $108 billion to contain the value of its currency, yet it remained the second worst performing market currency.
As for any economy, sustaining the price of foreign exchange is paramount as a first step in preventing inflation and, consequently, hyperinflation. However, the whole world is suffering from this germ of currency devaluation due to the war between Russia and Ukraine. Even so, data provided by the Ankara regime indicated that inflation at the end of 2022 was over 85%, among the highest in the world. The Saudi Fund for Development began talks with Turkey in November 2022.
Such a deposit could boost the falling value of the Turkish lira and help prop up the economy, which has been experiencing record inflation. Analysts say this could also help President Recep Tayyip Erdogan shore up support ahead of elections scheduled for June next year. Turkey's central bank has local currency swap deals with several of its counterparties worth a total of $28 billion, Reuters said. It signed a similar deal with China for $6 billion, with Qatar for $15 billion and with the United Arab Emirates for about $5 billion.
Turkey relies mainly on revenues from tourism, exports, direct investment and real estate to support its economy as it faces a crisis of inflation, collapsing currency and foreign exchange reserves - problems that have worsened in the wake of earthquakes in Turkey and Syria. In January Turkish President Recep Tayyip Erdogan claimed that the value of the nation's exports had risen to more than $250bn, exceeding 2021 figures by more than 12%. Meanwhile, Turkey's central bank is considering a measure to prevent banks from selling lira derivatives to their customers, to curb the growing demand for dollars by businesses across the country.
The needs of the Turkish people and entrepreneurs whose financial headquarters are on Turkish soil may worryingly increase the demand for dollars in the wake of the devastation wrought by the earthquakes - so far the most devastating of the year. The World Bank reported material losses of $34.3 billion, or about 4% of the country's GDP by 2021. The bank also reduced its forecast for the country's economic growth this year by half a percentage point.