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After years of adventurism in the Middle East and Eastern Mediterranean, Turkey is mending its fractured relationship with its neighbors. In turn, the Gulf states – including former rivals like Saudi Arabia and the United Arab Emirates – have provided relief to Turkey’s cash-strapped central bank through currency swaps and direct deposits. But are these relief measures enough to reverse Turkey’s fortunes?
Turkey has become a top destination for wealthy Gulf tourists injecting much-needed dollars into the country’s economy. But tourism is only a fraction of the capital pouring in from the Middle East.
Between 2016 and 2019, Qatar increased its investments in Turkey by nearly 500%, replacing countries like Germany and Russia as its second largest foreign direct investor.
In 2022, a policy of détente toward Saudi Arabia and the United Arab Emirates began, allowing Turkey to secure accords worth billions of dollars with its former rivals.
“Turkey has big gross external financing needs, which is basically demand for dollars,” said Timothy Ash, an emerging markets strategist at BlueBay Asset Management.
“It was logical to go offshore. Go abroad, try and find someone to give them the dollars.”
Since 2019, the Turkish central bank spent more than $100 billion to keep the lira afloat due to an ongoing currency crisis.
Gulf states offered relief, either in the form of currency swap lines or direct deposits. But critics warn these short-term measures to boost foreign exchange reserves may not cure the country’s chronic problems.
“Turkey is spending more than it can and it should. It borrows money from the so-called friendly countries to finance its short-term capital needs. This obviously cannot continue for a long time,” said Bilge Yilmaz, chief economist of the opposition Good Party.
Watch the video above to understand why Turkey needs Gulf money.
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