Monday, October 3, 2022

Other countries can follow in Sri Lanka’s footsteps

BANGKOK ( Associated Press) – Sri Lanka is desperately seeking help to deal with its worst crisis in living memory. But it is not the only economy facing major problems from price rises triggered by the Russian invasion of Ukraine. From Laos to Pakistan, from Guinea to Argentina, alarm bells are ringing all over the world.

About 1.6 billion people in 94 countries bear at least one factor of crisis in food, energy and financial systems, while 1.2 billion face a “perfect storm” and are highly vulnerable to inflation and other long-term problems. UN Secretary-General’s Global Crisis Response Group.

The exact reasons for the disruptions vary, but all are at high risk from rising food and fuel prices associated with the Russian invasion of Ukraine, which has already plagued tourism and other sectors. The World Bank estimates that per capita income in developing countries will be 5% lower than before the pandemic.

Difficulties provoke protests and an increase in interest rates on short-term loans to counter the crisis leads to an increase in foreign debt that costs more to pay. According to the United Nations, more than half of poor countries have difficulty meeting those payments. Some of the worst crises are in countries ravaged by corruption, civil war, coups and other disasters.

A look at the most compromised economies:


It has been battling a severe economic crisis since the Taliban came to power last year following the withdrawal of US and NATO forces. Foreign aid was halted almost immediately, sanctions were imposed, bank transfers were halted and trade was paralyzed as many countries refused to recognize the new government. Nearly half of the 39 million residents are at risk of starvation and most public workers, including doctors, nurses and teachers, have not been paid for months. The recent earthquake killed more than 1,000 people and made matters worse.


Four out of ten Argentines are poor and have little reserves with their central bank due to the devaluation of the peso. Inflation is expected to be 70 per cent this year. Millions of Argentines survive thanks to soup kitchens and state aid programs, many of which are run by powerful social movements affiliated with the ruling party. The recent $44,000 million debt restructuring deal with the IMF is being questioned for concessions that could stifle economic recovery, according to its opponents.


Egypt’s inflation rate reached 15% in April, hitting nearly a third of the 103 million people hardest-hit by poverty. The population was already enduring an ambitious reform program that includes severe austerity measures such as cutting fuel, water and electricity subsidies. The central bank raised interest rates to fight inflation and devalued the currency, making it harder to pay off massive foreign debt. Egypt’s stock dwindled. Its neighbors Saudi Arabia, Qatar and the United Arab Emirates said they would invest $22 billion in deposits and investments to help Egyptians.


This small country had one of the fastest growing economies before the pandemic. But his debt has increased significantly and he is trying to renegotiate his payment like Sri Lanka. According to the World Bank, its foreign reserves are equivalent to less than two months’ worth of imports. And the devaluation of its currency by 30%, the kip, further complicates matters.


Like Sri Lanka, Lebanon suffers from a toxic combination: its currency is falling, everything is in short supply, high levels of inflation and rising famine, long lines at gas stations, and a middle class eroded. It is also coming out of a protracted civil war and a failed government and terrorist attacks hindering its recovery. Proposals to increase taxes sparked months of protests in 2019. The local currency collapsed and Lebanon defaulted on its debt, then $90 billion, equivalent to 170% of its GDP. It is one of the highest in the world. By June 2021, about 90% of its currency was devalued, and the World Bank said Lebanon was facing one of the world’s worst crises in more than 150 years.


The pandemic and political instability continue to wreak havoc in Myanmar, especially after the February 2021 military coup that toppled Aung San Suu Kyi’s government. For this financial sanctions were imposed. The economy shrank 18% last year and is projected to see almost no growth this year. More than 700,000 people have fled the country or been displaced from their homes by armed conflict and political violence. The situation is so precarious that the World Bank did not make any forecast for Myanmar from 2022 to 2024.


Like Sri Lanka, Pakistan is in talks with the IMF in hopes of reviving a $6 billion loan stalled after the ouster of Prime Minister Imran Khan’s government in April. A minister’s call to reduce the consumption of tea to reduce import costs, which amount to $600 million, caused deep unease. The Pakistani rupee has devalued 30% in the last one year. To satisfy the IMF, Prime Minister Shahbaz Sharif raised the price of the fuel, ended its subsidies and imposed a 10% tax on important industrial sectors. By the end of March, Pakistan’s reserves were equivalent to two months’ worth of imports.


Deteriorating government finances and rising trade and capital account deficits have compounded Turkey’s problems, with high inflation, rising debt and high unemployment rates. The central bank is appealing to its foreign exchange reserves to ease the crisis. Tax cuts and fuel subsidies undermine government finances. Turkey’s foreign debt amounts to 54% of its GDP, a steady level.


It suffers from inflation of over 130% and is expected to repeat the hyperinflation of 2008, when it reached 500,000 million%. The economy has been plagued by de-industrialisation, corruption, lack of investment, low exports and high debt for years. Inflation makes people not trust the national currency and try to get dollars. Many people skip meals.


Munir Ahmed (Islamabad, Pakistan) and Krishna Francis (Colombo, Sri Lanka) contributed to this report.

Nation World News Desk
Nation World News Desk
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