Turkiye’s forex reserves turn negative ahead of critical runoff vote

The Turkiye central bank’s net foreign exchange reserves turned negative for the first time since 2002. (Reuters/File Photo)
The Turkiye central bank’s net foreign exchange reserves turned negative for the first time since 2002. (Reuters/File Photo)
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Updated 26 May 2023

Turkiye’s forex reserves turn negative ahead of critical runoff vote

Turkiye’s forex reserves turn negative ahead of critical runoff vote
  • ‘Govt to blame for using monetary policy to win polls’
  • Winner must address inflation, debt, lira’s value, say experts

ANKARA: As Turkiye heads to a critical runoff vote to determine the nation’s president on Sunday, the central bank’s net foreign exchange reserves turned negative for the first time since 2002, dropping to minus-$151.3 million on May 19, due to increased market demand since the first round of the elections.

Experts say the current course in Turkiye, one of the world’s 20 largest economies, is connected to the controversial efforts of the incumbent government to win the elections by trying to hold the Turkish lira relatively steady with unorthodox policies and low interest rates amid high inflation.

However, keeping interest rates low also bears risky consequences despite its short-term advantages.

Selva Demiralp, a professor of economics at Koc University in Istanbul, said: “The central bank’s foreign currency reserves are meant to be a buffer during times of temporary volatility. They are not supposed to be used as a monetary policy tool in a free exchange rate system, simply because they are of limited supply.”

“Turkiye’s central bank has done the latter, however, and tried to offset the adverse effects of a low interest rate environment on the exchange rate by selling foreign currency reserves. As of now, these reserves are mostly depleted with gross reserves of around $100 billion and net reserves are close to (zero). After adjusting for swap agreements, the net reserves become deeply negative around (minus) $60 billion,” she told Arab News.

For an economy with a monthly current account deficit of around $8 billion, Demiralp thinks that the negative value of net reserves is alarming because it can cause disruptions in trade, considering that Turkiye relies on imports of intermediate goods in its production structure.

“Hence potential disruptions in supply chains due to lack of foreign exchange would not only affect Turkish production but would also affect the production of our trade partners in today’s global production network where most countries are interconnected through supply chains,” she said.

“Because the presence of foreign investments in Turkiye is rather minimal at the moment, it would not make much of a change regarding the foreign investors’ hesitance about entering Turkish markets. The decline in reserves and the consequent increase in Turkiye’s risk premium would increase the external borrowing costs of the domestic investors, however,” Demiralp said.

There are still uncertainties over whether the new government will stick with the current economic program of encouraging exports and economic growth with rate cuts and strictly monitored foreign exchange markets, or switch to another model with gradual interest rate hikes.

Kemal Kilicdaroglu, the opposition’s contender against President Recep Tayyip Erdogan, has promised a return to orthodox and investor-friendly economic policies with rate hikes.

However, even if he comes to power, the parliamentary majority will still be in the hands of Erdogan’s Justice and Development Party and its alliance, which will restrict the ability to manage a new financial program.

Sky-high inflation rates reaching 44 percent and depleted foreign reserves still pose significant challenges. The country will also face local elections next March that requires the need to sustain economic stability for some time.

However, Erdogan recently told CNN he would not change his economic policy if he wins a third presidential term. This means the currency might sink further, while more restrictions might also be placed on foreign currency withdrawals.

Economist Demiralp believes that the likely scenario after the elections is a gradual hiking of rates to ease the pressures on the foreign exchange market and encourage capital inflows.

“This goes against the signals and the guidance by government officials. Nevertheless, the alternative to the orthodox policies is stricter capital controls and I believe the costs of that route would far outweigh the costs of a tightening cycle on the Turkish economy,” she added.

The national currency continues slipping to record lows against the euro and the US dollar. It has lost almost 80 percent of its value against the dollar over the past five years.

Russia recently agreed to delay some of Turkiye’s payment for natural gas imports — a $600-million bill — to next year, while in March Saudi Arabia deposited $5 billion in Turkiye’s central bank.

Following Sunday’s elections, among the winning side’s top priorities would be to address skyrocketing inflation and the plummeting lira.

Emre Akcakmak, a Dubai-based senior consultant at East Capital, said that regardless of the winning candidate, there are several issues that the new government must address urgently.

“The central bank’s declining net international reserves, growing short-term external debt, large current account deficit, high inflation, and a massive pile of foreign currency-protected deposits are just a few of the many,” he told Arab News.

According to Akcakmak, although the net international reserves have fallen into negative territory, the central bank still has some room to delay major action, considering the usable gross reserves.

“However, time is ticking away, and potential troubles are deepening as long as there is no decisive policy response,” he said.

The incumbent government of Turkiye has long rejected any suggestion of a rescue package from the International Monetary Fund as an external solution to its financing needs, and reaching an agreement with the IMF is still not on its agenda.

“There is a lot of talk about the IMF as an external solution, but the reality is that the international reserves are already supported by external sources, given significant foreign central bank swaps and deposits,” said Akcakmak.

“A solution should ultimately come from within, with a strong and comprehensive policy response that takes a long-term view, rather than solely addressing the immediate challenges,” he added.

In April, the IMF raised Turkiye’s economic growth forecast to 3.6 percent for next year but lowered the country’s economic growth forecast for this year to 2.7 percent.


Sudanese displaced by violence find sanctuary in Al-Jazirah state — for now

Sudanese displaced by violence find sanctuary in Al-Jazirah state — for now
Updated 30 May 2023

Sudanese displaced by violence find sanctuary in Al-Jazirah state — for now

Sudanese displaced by violence find sanctuary in Al-Jazirah state — for now
  • Al-Jazirah has thus far received the largest number of displaced people from war-stricken capital Khartoum
  • The state faces a scarcity of commodities that are normally distributed from Khartoum to outlying areas

WAD MADANI, Sudan: Hundreds of thousands of civilians in Sudan have been displaced since the confrontation between the Sudanese Armed Forces and the paramilitary Rapid Support Forces began six weeks ago, with the vast majority of them choosing to remain within the nation’s borders.

One state, Al-Jazirah, situated just a three-hour drive southeast of Khartoum, has so far received the largest share of people fleeing the war-stricken Sudanese capital, becoming something of a microcosm of the wider displacement crisis.

While those fleeing to Al-Jazirah have been spared the difficult journey over bridges, waterways and international borders to reach safety, many have faced new struggles upon arrival in displacement camps, with limited access to healthcare, shelter and food.

Given the swelling ranks of displaced, Al-Jazirah faces mounting shortages of medicine, fuel and food — commodities that under normal circumstances would be distributed from Khartoum to Sudan’s various outlying states.

Smoke billows in southern Khartoum amid ongoing fighting between the forces of two rival generals in Sudan on May 6, 2023. (AFP)

Asaad Al-Sir Mohammed, Sudan’s commissioner of humanitarian aid, says relief organizations are active on the ground in Al-Jazirah dealing with the influx of the displaced. But capacity is already stretched.

“We are well networked with all organizations in Sudan,” he told Arab News. “With us now are organizations that specialize in dealing with refugees. There is coordination with the World Health Organization and the World Food Programme.”

A number of organizations have signed up to coordinate with Sudan’s Ministry of Social Welfare, Humanitarian Aid Commission and the Commission of Refugees, including the UN refugee agency UNHCR, Alight, ZOA, the Danish Refugee Council, Medical Teams International and Islamic Relief.

“Our plan is to absorb the first trauma for the displaced and provide housing worthy of their humanity, and then the organizations intervene,” said Mohammed. “There are a number of organizations, including Doctors Without Borders, who have already started their work on the mandate.”

A patient is transported on a gurney at the Medani Heart Centre hospital in Wad Madani, the capital of the Al-Jazirah state in east-central Sudan, on May 25, 2023. (AFP)

However, despite solid coordination between service committees and Al-Jazirah state authorities, Mohammed says the sheer number of displaced people may lead to even greater shortages unless aid agencies and Khartoum’s Supreme Committee act quickly.

Local food producers, in particular, are under pressure to boost production in order to meet the mounting demand of extra mouths to feed and the collapse of supply chains from the capital.

Mudther Abdul Karim, who represents local flour producers, told Arab News that the seven biggest flour mills in Al-Jazirah will likely face an increased workload owing to the closure of several units in Khartoum due to fighting.

All of Al-Jazirah’s flour mills have been compelled to operate at maximum capacity, Karim says, with authorities arranging for the import of flour from mills in Red Sea state and neighboring countries to meet the increased demand.

A Sudanese man harvests onions in the region of Jazirah, south of Khartoum, on May 11, 2023. As fighting in Khartoum shows no signs of abating, small business owners have been left at a loss with no prospect of making up weeks of unmitigated downturn. (AFP)

As for fuel, although the state benefits from a direct supply via a 217 km-long pipeline connected to the Al-Jely refinery, many citizens are still forced to wait in line for more than two days to fill cars and jerrycans.

To accommodate the human tide flowing out of Khartoum, Fatah Al-Rahman Taha, Sudan’s minister of social welfare, told Arab News that Camp Five in Al-Qadarif state, which used to house Ethiopians displaced by the Tigray War, is being reopened to prepare for new arrivals.

“The problem of war is an imposed reality, but the clouds will lift and Sudan will rise again,” said Taha.

A man walks past a shuttered petrol station in Wad Madani, the capital of the Al-Jazirah state in east-central Sudan, on May 18, 2023. (AFP)

The fighting across Sudan has killed more than 1,800 people, according to the Armed Conflict Location and Event Data Project (ACLED). The UN says that more than 1 million people have been displaced within Sudan, in addition to 300,000 who have fled to neighboring countries.

Increasingly desperate civilians have been waiting for brief lulls in fighting to flee or for assistance to flow through as battles have left Khartoum with intermittent supplies of food, water and electricity.

Escape from the conflict zone is not easy. Western travel advisories say that Khartoum International Airport is closed, evacuation flights from the Wadi Saeedna airbase, north of Khartoum, have ceased, and evacuation options from Port Sudan are limited.

Consequently, people seeking to leave Sudan using commercial options have to do so at their own risk. Then again, there are serious concerns about the safety and reliability of local airlines, with many of them banned from operating in international airspace.

FASTFACT

  • Khartoum state is where the national capital of Sudan, Khartoum city, is located. It is the smallest state by area but the most populous. The capital city contains offices of the state, governmental and non-governmental organizations, cultural institutions and the main airport.

Foreign citizens seeking to depart Sudan for neighboring countries by other means are instructed to take advice before doing so as border crossings may be closed, or may involve long transit and processing times, in the absence of the necessary infrastructure and staffing.

As of Monday, fighting continued in key battlegrounds despite a new ceasefire agreement which took effect on May 20 — the latest in a string of attempted deals.

Read more: Saudi, US mediators announce late Monday the ceasefire in Sudan will be extended for 5 days

The US and Saudi Arabia, which brokered the deal, reported “serious violations” since it took effect, but said in a joint statement on Friday that there had been “improved respect for the agreement,” despite “isolated gunfire in Khartoum.”

Sudanese have been suffering since the fighting began six weeks ago. (AN photo by Faiz Abubakr)

Not all of those arriving in Al-Jazirah from Khartoum state are Sudanese. For many years, the state hosted 307,000 refugees and asylum seekers from conflict zones across the African continent. But now, with the capital city and its surrounding areas engulfed in violence, they have been forced to flee once more.

“The refugees are mainly Eritreans, Ethiopians and South Sudanese,” Mustafa Mohammed, secretary-general of Al-Jazirah’s local authority and head of the chamber of volunteers formed to deal with people displaced from Khartoum, told Arab News.

“Some of them asked to return to their places of origin and means of transport were provided to them. Some were deported to refugee reception.

“With the help of the Sudanese Red Crescent Society, we were able to limit the number of expatriate families nationwide, which are about 500 families to 24,700 individuals, and the number is still increasing,” he added, noting that this does not include families hosted by relatives.

“The incoming numbers to the state are large and unexpected. We are providing various services, from medical services to providing housing and food.”

For many years, Al-Jazirah state hosted 307,000 refugees and asylum seekers from conflict zones across the African continent. (AN photo by Faiz Abubakr)

The Sudanese Red Crescent Society recently reported that there were 5,244 families spread across 28 camps in various localities, totaling some 28,217 displaced individuals. Meanwhile, some 272 families are staying in apartments and 2,114 individuals in hotels.

The camps themselves suffer from water shortages and numerous other challenges, according to Yasser Salah, head of the Sharaa Alhwadeath youth volunteer initiative in Al-Jazirah.

“Since the escalation of violence in Khartoum state, we have faced a very large humanitarian disaster that volunteers address in the first place through the work of small camps, some of which are hosted in schools and others in homes,” Salah told Arab News from Al-Shaima Camp, a student housing complex in Al-Jazirah’s state capital, Wad Madani, which is receiving displaced households.

Salah said that there was no ignoring the humanitarian crisis now unfolding in the state, as pharmacies struggle to obtain basic medicines and blood banks run out of stock for transfusions.

Unofficial camps, which are not recognized by the state, have also sprung up in the wake of the crisis. Of the 18 camps in Wad Madani, just two are recognized by the government. Local volunteers told Arab News that no state assistance is provided to the remaining 16.

Instead, the displaced depend upon donations from friends and young people working in local as well as international aid agencies.

People walk as smoke billows in the background during fighting in the Sudanese capital Khartoum, on May 3, 2023. (AFP)

One local volunteer, who wished to remain anonymous, said: “The camps at our disposal suffer from lack of water and drinking water, as well as food, (medical) treatment and general (healthcare), beds and mattresses.

“There is a lack of electricity and there are a large number of patients. Therefore, we host treatment days in the presence of doctors.”

Despite the lack of government support, the volunteer said that those housed in the unofficial community-supported camps are often better off than those in state-recognized camps.

“The condition of the camps under the control of the government is worse than in the camps we operate, which are based on the principles of humanism and contribution.”

 


Egypt’s El-Sisi, top Iraqi cleric discuss political developments in Iraq

Egypt’s El-Sisi, top Iraqi cleric discuss political developments in Iraq
Updated 29 May 2023

Egypt’s El-Sisi, top Iraqi cleric discuss political developments in Iraq

Egypt’s El-Sisi, top Iraqi cleric discuss political developments in Iraq
  • Ammar Al-Hakim commends Egyptian leadership, expresses hopes for continued cooperation between two countries

CAIRO: Egyptian President Abdel Fattah El-Sisi met with Ammar Al-Hakim, head of the Iraqi Wisdom Movement, in Cairo on Sunday. The two leaders discussed the latest political developments in Iraq and prominent regional issues of mutual interest.

During the meeting, El-Sisi affirmed his pride in the fraternal relations between Cairo and Baghdad and his government’s support of Iraq’s efforts to achieve progress.

El-Sisi also acknowledged Al-Hakim’s constructive role in maintaining stability in Iraq.

Al-Hakim likewise commended El-Sisi’s leadership and expressed Iraq’s aspiration to continue strengthening relations with Egypt, as well as his country’s appreciation for Egyptian efforts to support Iraq and its keenness to benefit from Egyptian experiences in all fields.

Egyptian Minister of Foreign Affairs Sameh Shoukry also met with Al-Hakim.

Ahmed Abu Zeid, spokesman for the Egyptian Foreign Ministry, said the two discussed a number of regional issues of common concern and affirmed their interest in continued cooperation to improve security in the region.

Shoukry expressed Egypt’s full support of Iraq in its war against terrorism and highlighted the importance that Egypt attributes to the tripartite cooperation mechanism between Egypt, Iraq, and Jordan, a reflection of the countries’ common political will.

Separately, during a discussion with experts of the Egyptian Center for Strategic Studies, Al-Hakim said there are many areas in which Egypt and Iraq can coordinate, citing the importance of regional cooperation as a reason why “Iraq hosted five rounds of talks between Saudi Arabia and Iran, in addition to discussions between other countries.”

Iraq was able to overcome, to a large extent, the challenges facing it, especially those posed by terrorist groups, which are now only present in some small enclaves in the desert, he added.

“Sectarianism in Iraq is political, not social, and there are political forces that want to entrench themselves behind sects to gain (benefits),” Al-Hakim said.

There has been a “national realization,” he added, that “there is no way to overcome challenges except through dialogue” that promotes “internal solutions” rather than ones “imposed from outside.”

He emphasized that strengthening the state is the main solution to the problems that face it.


DP World launches partnership to get African business moving

DP World launches partnership to get African business moving
Updated 29 May 2023

DP World launches partnership to get African business moving

DP World launches partnership to get African business moving
  • The partnership aims to assist closing the gap in unmet demand for working capital in Africa

DUBAI: Dubai-based DP World has teamed up with the largest bank in Africa by assets to offer new trade finance solutions, Emirates News Agency reported on Monday. 

African businesses seeking trade finance will now be able to receive working capital from Standard Bank through the DP World Trade Finance platform.

The partnership aims to assist closing the gap in unmet demand for working capital in Africa.

DP World Trade Finance connects businesses with financial institutions while also providing trade finance facilities. Customers can apply for credit on the company's digital platform, and it will offer them with the best options from international financiers that would otherwise be out of their reach.

“DP World exists to make the world’s trade flow better and this partnership with Standard Bank is testament to that goal,” DP World’s Sultan Ahmed bin Sulayem said. 

“Africa is a key market for us, with this partnership complementing our ongoing investment and development across the continent. 

“Our recent acquisition of Imperial Logistics allowed us to enhance our logistics capabilities in Africa. 

“With the addition of DP World Trade Finance into our offerings, we aim to support African businesses of all sizes for their working capital needs. 

“Together with Standard Bank, we will help African businesses go from strength to strength and grow their exports to new markets.”

DP World Financial Services Senior Executive Officer Sinan Ozcan added: “Standard Bank joining the DP World Trade Finance platform is great news for businesses across Africa. 

“DP World offers Standard Bank access to data on cargo movements, enabling them to lend with confidence. 

“We in turn plan to co-lend and share risk with Standard Bank on deals made via the platform, whilst Standard Bank will be able to support the many suppliers in DP World’s ecosystem across Africa with its strong financing capabilities. 

“This ecosystem has itself been strengthened by the acquisition of Imperial Logistics by DP World in 2022. 

“Standard Bank’s strong presence across countries like Nigeria, Kenya and Mozambique will see this partnership develop further in the African market.”

Since its launch in July 2021, DP World Trade Finance has partnered with 23 financial institutions and generated more than $700 million in credit limit submissions. The company began directly lending to businesses last year.

Kenny Fihla, Chief Executive Officer, Corporate and Investment Banking at Standard Bank said: “Partnering with DP World allows us to enhance how we facilitate cross-border transactions in growing key trade corridors.”
 


Desert wells help Iraq harvest bumper wheat crop as rivers dry

Desert wells help Iraq harvest bumper wheat crop as rivers dry
Updated 29 May 2023

Desert wells help Iraq harvest bumper wheat crop as rivers dry

Desert wells help Iraq harvest bumper wheat crop as rivers dry
  • Drilling the desert for water could provide immediate relief in a country that the UN says is among the five nations most vulnerable to climate change in the world

KARBALA: Amin Salah used to grow wheat near the banks of Iraq’s Euphrates River, but persistent droughts have led him to switch to farming unlikely new grounds deep in the harsh desert of Najaf.

Watered by sprinklers fitted to wells dug more than 100 meters under the sun-bleached earth, his land now produces double what it did compared to when he relied on ancient methods that flood fields with river water, he said.

“It’s a golden year, a golden season,” said Salah, wearing a traditional white robe and reflective sunglasses as he walked his field and noted the benefits: less money and water spent, as well as a bigger and quality harvest.

Iraq’s government says this officially supported shift has allowed the country to double areas cultivated with wheat this year to some 8.5 million dunams (850,000 hectares) compared to roughly 4 million (400,000 hectares) last year.

Agriculture Ministry spokesperson Mohammad Al-Khuzai said that has translated into a harvest of around 4 million tons of wheat — the largest in years and 80 percent of the needs of a country with a 43 million population who eat bread at almost every meal. The shift in methods is driven by necessity: Iraq’s two main rivers, along which civilization emerged thousands of years ago, have lost more than half of their flow due to reduced rainfall, overuse and upstream dams.

Drilling the desert for water could provide immediate relief in a country that the UN says is among the five nations most vulnerable to climate change in the world, and where climate-induced migration has already begun. However, heavy use of the wells could bleed desert aquifers dry, agricultural experts and environmentalists warn. Some farmers have already noted a drop in the water table.

Iraq has more than 110,000 wells, but only a fraction, some 10,000, are fitted with modern systems that prevent water waste, said Karim Bilal, an agricultural engineer and former director of Najaf’s agriculture directorate.

Hadi Fathallah, director of public policy at consultancy Namea Group who has researched agriculture in Iraq said: “It’s very desperate to go to desert wells.

“You are plugging into aquifers that have been gathering water for thousands of years and will disappear in a few years if used this way,” he said.

Iraq should focus on modernizing agriculture, engage in water diplomacy with its neighbors to increase river flows and revitalize agricultural areas that have not recovered from war, Fathallah said.

Al-Khuzai said the government was focused on sustainable use, supporting the installation of drip and sprinkler systems.

Large institutions have bought into the shift to desert wells: The body that oversees the Imam Hussein Holy Shrine now farms 400 hectares of wheat in the desert — 55 km from the shrine — up from 100 hectares in 2019.

“We have turned the desert into a green oasis,” declared Qahtan Awaz, an agricultural official with the shrine, though he noted that the water table had sunk between 12 to 15 meters since last season.

Behind him, a pair of large green US-made harvesters pulled in wheat grown in large circles, then funneled processed grain into waiting trucks for delivery to government silos.

From there, much of the grain enters one of the largest government-run food programs in the world, which provides most families with monthly rations. 

Crop failures in 2021 and 2022 driven by drought, and a surge in food prices due to Russia’s invasion of Ukraine put the scheme under pressure, which the government wants to avoid.

“The government are trying to alleviate a lot of pain,” Fathallah said. 

“But this is not adaptation to climate change. It’s a kind of morphine.” 


Egypt’s El-Sisi, Turkiye’s Erdogan agree on reinstating ambassadors

Egypt President Abdel Fattah El-Sisi and Turkish President Recep Tayyip Erdogan. (File/AFP)
Egypt President Abdel Fattah El-Sisi and Turkish President Recep Tayyip Erdogan. (File/AFP)
Updated 29 May 2023

Egypt’s El-Sisi, Turkiye’s Erdogan agree on reinstating ambassadors

Egypt President Abdel Fattah El-Sisi and Turkish President Recep Tayyip Erdogan. (File/AFP)

CAIRO: Egypt President Abdel Fattah El-Sisi and Turkish President Recep Tayyip Erdogan agreed on “the immediate start of upgrading diplomatic relations, exchanging ambassadors,” Egypt’s presidency said in a statement on Monday.
El-Sisi spoke with Erdogan in a phone call to congratulate him on his presidential win.
Egypt’s foreign minister Sameh Shoukry visited Turkiye in April and met his Turkish counterpart Mevlut Cavusoglu, the two parties agreed then on specific time frame to raise the level of diplomatic relations and to prepare for a summit between the two presidents.
The presidents may meet in person again after Turkiye’s May 14 election, Cavusoglu said in April.