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Foreign deposits in Turkiye's economy a breath of fresh air ahead of May presidential polls

13 March 2023 11:07 (UTC+04:00)
Foreign deposits in Turkiye's economy a breath of fresh air ahead of May presidential polls
Qabil Ashirov
Qabil Ashirov
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Under the current circumstances, when the world is divided and the policy of saber-rattling has come to the fore, President of Turkiye Recep Tayyip Erdogan is reaping the fruits of his successful foreign policy.

Turkiye under the leadership of Recep Tayyip Erdogan has achieved huge success in various sectors, and the economy is among the G20 economies. However, the 2016 attempted coup by the FETO terror group cost dearly to the economy of Turkiye.

Following the failed post-coup period, the global pandemic and the hike in oil and gas prices further deteriorated the Turkish economy. The Turkish currency lira has devaluated 6 times in the last 6 years and the slump of the lira caused inflation, which in turn raised criticism against the Erdogan government.

In addition, the devastating earthquake in Turkiye, where nearly 50,000 people were killed and more than 105,000 buildings were damaged, is expected to further deteriorate the national economy. According to the World Bank, reconstruction and recovery costs may exceed $68 billion.

Amid hard times for the Turkish economy and overall regional situation, Turkiye is to hold a presidential election in May 2023.

It is significant to note that, Turkiye used swaps and deposits to cope with economic problems even before the earthquake and Saudi Arabia is not the first country to deposit its economy. However, the deposit agreement with Saudi Arabiya will probably give some relaxation for the Erdogan government to concentrate on the election.

Before Saudi Arabia, Turkiye had inked swap or deposit agreements with China for $6bn, Qatar for $15bn, the United Arab Emirates for $5bn, and South Korea for $2bn, bringing the overall amount to $28bn.

Besides, SOFAZ placed a 6-month deposit with a total value of 1bn euros with the Turkish Central Bank. According to the local media, Azerbaijan re-extended the period of the deposit.

The report about Saudi Arabia depositing $5bn into the Turkish central bank through the Saudi Fund for Development (SFD) was of another significant motivation for reinvigorating Turkish-Saudi relations.

According to the SFD, Saudi Tourism Minister and Fund’s Chairman Ahmed Al-Khateeb signed the agreement with the Governor of the Turkish Central Bank Sahap Kavcioglu, and the deposit was made on instructions of King Salman and Crown Prince Mohammed bin Salman.

Though no comments were available from both Saudi and Turkish officials about how the cash would be used, some economists believe that the deposit would be used to pave the way for either stabilization or in the best-case scenario to boost the long-weakening Turkish lira against the US dollar.

Moreover, by signing this agreement the Saudi Kingdom demonstrated its confidence in the Turkish economy, which in turn, will contribute to attracting foreign investment in the Turkish economy.

The deposit also heralds the restoration of relations between Saudi Arabia and Turkiye, which deteriorated after the assassination of Saudi journalist Jamal Ahmad Khashoggi in 2018 and Turkish yearlong support to Qatar.

Taking into consideration that Turkiye will hold a presidential election in a few months, and the depreciation of the lira against the US dollar has led to a rise in inflation, which in turn has increased criticism of the Erdogan government, the signing of the deposit agreement suggests that the Kingdom of Saudi Arabia wants to see Erdogan at the head of Turkey.

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