Saudi Arabia's investment of $5 billion in Turkey

 Saudi Arabia's investment of $5 billion in Turkey grew the economic condition country.

 

With its Saudi Fund for Development, Saudi Arabia decided to deposit $5 billion into Turkey's central bank, according to a statement released by the fund on Monday. The choice "shows the Kingdom of Saudi Arabia's commitment to helping Turkey's efforts to build its economy," according to the statement.

 

 

The news is released as Turkey battles an economy that has been severely harmed by years of high inflation and a recent spate of deadly earthquakes that killed more than 46,000 people and displaced millions. After several years of policy intervention by Turkish President Recep Tayyip Erdogan, who delayed hiking interest rates despite mounting inflation, the country's inflation rate is still above 55%, and its currency is trading around record lows against the US dollar.

 

The Covid-19 pandemic, rising oil prices globally, and Turkey's growing current account and trade imbalance have all combined to put the Turkish economy in a vulnerable situation, and many of its 85 million residents can now hardly afford basic necessities.

 

Significantly, Saudi Arabia's move marks a further improvement in the two nations' ties after ties were all but severed following the murder of journalist Jamal Khashoggi in the Saudi consulate in Istanbul by Saudi operatives. Both countries are key players in the Muslim world.

 

Since then, the nations have employed a variety of tactics to covertly boycott one another's goods, services, and aircraft, as well as media outlets. Yet as Erdogan adopted a completely different stance and pursued reconciliation and financial backing for his country's faltering economy, leaders of Saudi Arabia and Turkey paid official trips to one another's nations and made trade and investment commitments.

 

A move by Riyadh seems to have an agenda for some observers ahead of Turkey's presidential election on May 14. Assume we now know who MBS wants to win the Turkish election, writes Timothy Ash, an emerging markets strategist at BlueBay Asset Management, in an email.

 

"Notable that Saudi loan to Turkey comes with no strings attached - fascinating given that it's lending to other distressed credits, such Pakistan, Egypt, Tunisia, and Bahrain, comes with the necessity now for solid macro policy and/or IMF programs," Ash noted.

 

Several struggling economies in the area have also received financial support from Saudi Arabia, but recently requests from Pakistan and Egypt were turned down because of demands that they first implement specific changes. With Turkey, it doesn't seem like this is the case.

 

Demonstrates, in my opinion, Erdogan's "leverage," Ash wrote.

 

Both the Saudi Fund for Development and the Turkish Central Bank did not immediately reply to requests for comment from CNBC.

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