Saudi Finance Minister Mohammed Al-Jadaan speaks during a meeting of finance ministers and central bank governors of G20 countries in the Saudi capital Riyadh on February 23, 2020.
MAKE NURELDINE | AFP via Getty Images
Saudi Arabia has agreed to deposit $5 billion in Turkey’s central bank through its Saudi Fund for Development, the fund said in a statement on Monday.
The move 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 grapples with an economy battered by years of high inflation and a recent series of devastating earthquakes that have killed more than 46,000 people and left millions homeless.
Inflation in Turkey is still above 55%and his currency hovers near record lows against the dollar after several years of political intervention by Turkish President Recep Tayyip Erdogan, who resisted raising interest rates despite rising inflation.
Rising global energy prices, the Covid-19 pandemic and Turkey’s widening current account and trade deficit have also combined to put the Turkish economy in a precarious position, and now many its 85 million citizens living in the country can barely afford basic commodities.
In particular, Saudi Arabia’s decision signals further improvement in relations 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 at the Saudi consulate in Istanbul.
In the years since, countries have used various means to unofficially boycott each other’s products and flights or block each other’s media. But during 2022, the leaders of Turkey and Saudi Arabia have made diplomatic visits to each other’s countries and pledged to trade and invest, as Erdogan adopted a complete change of posturepursuing rapprochement and financial support for his country’s ailing economy.
For some observers, Riyadh’s decision has an apparent agenda ahead of Turkey’s May 14 presidential election.
“I guess we now know who MBS wants to win the Turkish elections,” Timothy Ash, emerging markets strategist at BlueBay Asset Management, wrote in an emailed note.
“It should be noted that the Saudi loans to Turkey come with no strings attached – interesting given that they lend to other troubled credits, such as Pakistan, Egypt, Tunisia, Bahrain, etc. now come with the requirement for good macro policy and/or IMF programs,” Ash wrote.
Saudi Arabia has also provided financial lifelines to other struggling economies in the region, but recently rejected requests from Pakistan and Egypt, demanding that they carry out some reforms first. This does not seem to be the case with Turkey.
“I guess shows Erdogan’s ‘leverage’,” Ash wrote.
Turkey’s central bank and the Saudi Fund for Development did not immediately respond to CNBC’s requests for comment.