Gulf injects cash in Turkiye ahead of elections

ByNews Desk- The Cradle 

Erdogan gave few details of the cash injection aimed at shoring up the Turkish currency and markets

Turkish President Recep Tayyip Erdogan revealed on 25 May that Gulf states have sent funding to Turkiye as “aid” to relieve pressure on the central bank and markets ahead of Sunday’s runoff presidential election.

“Our economy, banking and financial system are quite strong. Meanwhile, some Gulf states and such stocked money in our system. This is recent and this relieved our central bank and market, even if for a short while,” Erdogan said in an interview with CNN Turk.

“After Sunday’s election, you will see how these leaders will come here and how I will visit them to show gratitude,” he added.

Erdogan did not name the specific countries that sent assistance or what the amount was.

The Gulf funds have offset declines in the central bank’s foreign exchange reserves, which on a net basis dropped into negative territory last week for the first time in 20 years.

In March, the Saudi Fund for Development (SFD) deposited $5 billion into the accounts of the Turkish Central Bank.

The deposit came after Turkiye’s net foreign exchange reserves lost some $9.6 billion in the aftermath of the massive 7.8 magnitude earthquake that hit the south of the country in early February, which killed more than 56,000 people in Turkiye and Syria and left millions homeless.

Turkiye has struggled with a plummeting currency and high inflation in recent years. The hardship and anger this has caused for Turkish voters threatens Erdogan’s effort to retain the presidency after 20 years ruling the country.

Many economists suggest the high inflation is due to Erdogan’s decision to implement a series of interest rate cuts that accelerated in 2022, when officials cut rates four consecutive times in hopes of bolstering economic growth.

Turkiye’s foreign exchange reserves have fallen in recent years as the central bank uses reserves to purchase the Turkish lira. This has been necessary to stabilize the falling currency and fight inflation caused by interest rate cuts.

The Financial Times reported in January that Turkiye “spent $85.5bn last year intervening in the currency market in an attempt to slow the lira’s fall, according to Goldman Sachs estimates that take into account foreign currency purchased from exporters and then re-sold into the market.”