Saudi Arabia agreed to deposit $5 billion into Turkey’s central bank through its Saudi Fund for Development, the fund said in a statement Monday.
The decision is “a demonstration of the Kingdom of Saudi Arabia’s commitment to supporting Turkey’s efforts to strengthen its economy,” the statement said.
The news comes as Turkey struggles with an economy battered by years of high inflation and a recent series of devastating earthquakes that killed more than 46,000 people and left millions homeless.
Turkey’s inflation is still above 55%, and its currency is hovering near record lows against the dollar after several years of policy intervention by Turkish President Recep Tayyip Erdogan, who resisted raising interest rates despite mounting inflation.
Higher global energy prices, the Covid-19 pandemic and Turkey’s widening current account and trade deficit have also conflated to put the Turkish economy in a precarious position, and now many of its 85 million citizens living in the country can barely afford basic goods.
Notably, Saudi Arabia’s move signals further improvement in the relationship between the two countries — both power players in the Muslim world — after ties were all but severed following the murder by Saudi agents of journalist Jamal Khashoggi in the Saudi consulate in Istanbul.
In the years since, the countries had used various means to unofficially boycott each other’s products and flights or block each other’s media outlets. But over the course of 2022, leaders of both Turkey and Saudi Arabia made diplomatic visits to one another’s countries and pledged trade and investment, as Erdogan adopted a complete shift in posture, pursuing rapprochement and financial support for his country’s ailing economy.
For some observers, the move by Riyadh has an apparent agenda ahead of Turkey’s presidential election on May 14.
“Guess we now know who MBS wants to win the Turkish election,” Timothy Ash, an emerging markets strategist at BlueBay Asset Management, wrote in an email note.
“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,” Ash wrote.
Saudi Arabia has also provided financial lifelines to other ailing economies in the region, but recently rebuffed requests from Pakistan and Egypt, demanding that they make certain reforms first. This does not appear to be the case with Turkey.
“Shows I guess the ‘leverage’ of Erdogan,” Ash wrote.
The Turkish central bank and Saudi Fund for Development did not immediately respond to requests for comment.