Türkiye’s Central Bank announced that it had terminated a $5 billion deposit transaction with Saudi Arabia. This move is part of the country’s efforts to rebuild its foreign exchange reserves without relying on debt from wealthy allies.
Shift in policymaking before elections
The $5 billion deposit was made by Saudi Arabia before Türkiye’s presidential and parliamentary elections last year. This marked a significant shift in policymaking, as the authorities reversed years of loose policies and implemented aggressive tightening measures, primarily to address stubbornly high inflation.
Reducing external liabilities
The Central Bank of the Republic of Türkiye (CBRT) stated that the termination of the transaction is part of the ongoing efforts to reduce Türkiye’s external liabilities as part of its reserve management strategy. The bank noted that its external liabilities have recently improved by approximately $7 billion through the reduction of deposit balances.
The Saudi Fund for Development had decided to hold the deposit in the Turkish central bank following ministerial meetings in 2022.
Improving investor sentiment, reserve rebuilding
The more than year-long tightening drive has significantly improved investor sentiment and led to strong demand for Turkish assets, which has helped the CBRT rebuild its foreign exchange reserves at a record pace.
Strengthening reserves and reducing external liabilities
Mehmet Şimşek, Türkiye’s treasury and finance minister, stated that the country’s reserves have strengthened due to the increased influx of foreign resources, the reversal of dollarization, and reduced external financing needs resulting from the medium-term economic program. Consequently, Türkiye is reducing its external liabilities.
Şimşek also highlighted that the economic and financial cooperation between Türkiye and Saudi Arabia will continue.
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