Turkey and the United Arab Emirates signed a $5bn deal to boost Ankara’s foreign currency reserves in the latest sign of warming ties between the two former arch rivals.
The two nations’ central banks announced a swap agreement that they said would be worth 18bn dirhams ($4.9bn) and 64bn lira.
Khaled Mohamed Balama, governor of the UAE central bank, said that the agreement “reflects each nation’s desire to enhance bilateral co-operation in financial matters, particularly in the fields of trade and investments between the two countries”.
His Turkish counterpart, Sahap Kavcioglu, said that it demonstrated their commitment “to deepen bilateral trade in local currencies in order to advance economic and financial relations between our countries”.
Turkey, which has a large foreign debt burden, has suffered a renewed dip in its reserves of foreign currency after President Recep Tayyip Erdogan ordered a series of aggressive interest rate cuts in the final months of 2021 despite soaring inflation.
The country’s deeply negative real interest rates have put heavy pressure on the Turkish lira, which lost about 45 per cent of its value against the dollar last year. Turkish authorities spent billions of dollars in the final weeks of 2021 in a bid to halt its freefall.
The deal — the latest in a succession of swap agreements that Turkey has signed with global central banks — is a borrowing agreement rather than a concrete investment in the country.
While it will boost the country’s reported reserve figures, Ibrahim Aksoy, an analyst at HSBC in Istanbul, said he did not expect the deal to have a “significant impact” on the lira because market players followed the level of reserves excluding swap agreements. Once borrowed money — including swaps with other central banks — are stripped out, Turkey’s net foreign currency reserves are deeply negative.
Still, Turkish officials will hope that the agreement is a herald of further investment from the Gulf nation as a thaw in their once bitter relationship gathers pace.
Sheikh Mohammed bin Zayed al-Nahyan, the crown prince of Abu Dhabi, promised in November that his country would invest $10bn in Turkey when he met Erdogan on his first visit to Ankara in almost a decade.
The head of ADQ, an Abu Dhabi state investment vehicle, told the Financial Times earlier this month that the fund was in discussions with Turkey’s sovereign wealth fund about “a couple of opportunities” in the country, including companies within its portfolio.
Turkey and the UAE spent much of the past decade competing for influence in the region after backing opposing sides in popular uprisings that rocked the Arab world in 2011. But both countries have begun recalibrating their foreign policy over the past year, driven by the election of Joe Biden as US president and the desire to boost their economies.
Sheikh Mohammed has been shifting his focus towards economic diplomacy as the UAE seeks to bolster its post-pandemic recovery. Erdogan, meanwhile, has made overtures to a string of former regional foes as he seeks to attract foreign investment from the Gulf amid economic turmoil at home.
Erdogan, who has also been making moves towards Egypt and Israel, has said that he plans to travel to Saudi Arabia next month. If it goes ahead, the trip will be his first visit to the kingdom since the murder of the journalist Jamal Khashoggi in the Saudi consulate at Istanbul in 2018, which plunged relations between the two countries into crisis.