25 Jul 2024
RIYADH: Turkiye has terminated a $5 billion deposit agreement made with the Saudi Fund for Development as part of a review of its reserve management strategy.
The decision to end the arrangement, finalized with Saudi authorities, is expected to improve Turkiye’s external liabilities by approximately $7 billion through the reduction of deposit balances, according to the country’s central bank.
The original deal was signed off in March 2023, and was intended to provide crucial financial support to the Turkish economy as it grappled with the aftermath of devastating earthquakes and high inflation rates.
The country’s central bank announced the agreement had been ended as part of a reassessment of Turkiye’s international deposit transactions in a bid to lower its external liabilities.
International reserves are readily available assets controlled by countries’ monetary authorities that can be used for international payments and converted into other currencies, the bank said.
When the deal was initially reached, the Saudi Fund for Development described it as not only underscoring the strong historical ties and cooperation between the two nations, but also showcasing the Kingdom’s commitment to bolstering Turkiye’s economic stability.
Turkiye has been working to strengthen its economic and business relationships with Gulf nations, including the UAE and Saudi Arabia, as part of its strategy to attract foreign currency inflows.
On March 3 2023, Turkiye and the UAE signed a comprehensive economic partnership agreement to cut 93 percent of tariffs on non-oil trade and increase bilateral trade from $19 billion to $40 billion in the next five years.
Turkiye has struggled with a shortage of international reserves and high inflation rates, impacting living costs.
In 2022, the Turkish lira depreciated by 30 percent against the dollar, exacerbated by soaring energy prices following Russia’s invasion of Ukraine.
Turkiye is the 17th largest economy in the world, according to the International Monetary Fund, with a GDP of $1.024 trillion as of 2023.
In February 2023, the country contended with the aftermath of severe earthquakes which caused significant casualties, damage, and displacement, with recovery needs estimated at $81.5 billion.
Following the May 2023 elections, Ankara’s new economic team has aimed to address inflation and macroeconomic imbalances.
The economy grew 4.5 percent in 2023 but is expected to slow to 3 percent this year.
Addressing long-term issues like high inflation, low productivity, and weak foreign investment “would require robust fiscal measures and ambitious structural reforms to help accelerate sustainable economic growth,” the World Bank said earlier in April.