As President Recep Tayyip Erdogan embarks on his diplomatic tour across the Gulf, the Turkish lira finds itself in a state of turbulence. The lira plunged to a record low, losing over 2 percent of its value as concerns over higher interest rates grow. This decline comes amidst a backdrop of persistent inflationary pressures and a widening current account deficit.
By Tuesday afternoon, the Turkish lira was worth 26.99 to the dollar. Comparatively, this is 2.4 percent less than Monday’s 26.3505. Just this year the currency lost more than 30 percent of it’s value. Reports state that Türkiye’s central bank is meant to raise the policy rate from 15 to 20 percent this week.
Economic Relations with the GCC
Despite challenges facing the Turkish economy, President Erdogan’s GCC tour presents an opportunity to strengthen economic relations with key Middle Eastern partners. In the first half of 2023, Türkiye and Saudi Arabia recorded a remarkable $3.4 billion trade exchange, signaling the importance of economic ties between the two nations.
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Saudi Arabia is not only a crucial trading partner to Türkiye, but they are also a significant source of foreign direct investment. Saudi Arabia’s support and engagement could be instrumental in stabilizing the Turkish lira and bolstering investor confidence in Türkiye’s economic prospects.
The next stop of his tour is Qatar, with whom Türkiye is celebrating 50 years of diplomatic relations. A declaration signed by Qatari and Turkish officials during the visit read, “We are pleased to celebrate the 50th anniversary of the establishment of diplomatic relations between the Republic of Türkiye and the State of Qatar in 2023. Türkiye-Qatar relations have undergone a qualitative transformation since (their) establishment in 1973 until (they) reached the stage of strategic partnership.”
Economic Reforms and Investor Sentiment
During his Middle East tour, President Erdogan is addressing concerns surrounding the economy and the declining lira. One of the main issues investors are closely monitoring is Türkiye’s commitment to implementing economic reforms. Structural reforms aimed at enhancing fiscal discipline, improving the business environment, and addressing inflationary pressures could help restore investor confidence in the Turkish market.
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