BANGKOK ( Associated Press) – Sri Lanka is seeking help through its worst crisis in living memory. But it is not the only economy facing major problems from rising prices stemming from the Russian invasion of Ukraine. From Laos to Pakistan, from Guinea to Argentina, alarm bells are ringing all over the world.
Nearly 1.6 billion people in 94 countries are facing at least one factor in the crisis of food, energy and financial systems, while 1.2 billion are facing a “perfect storm” and are highly vulnerable to inflation and other long-term problems Huh. For the United Nations 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 linked to the Russian invasion of Ukraine, which has battered tourism and other sectors already hit by the coronavirus pandemic. The World Bank estimates that per capita income in developing countries will be 5% lower than before the pandemic.
The hardships provoke protests, and external debt rises as interest rates on short-term loans rise to meet the crisis, which costs more and more to service. According to the United Nations, more than half of poor countries have difficulty meeting those payments. Some of the worst crises occur in countries ravaged by corruption, civil war, coups and other disasters.
A look at the most compromised economies:
It has been grappling with a severe economic crisis since the Taliban came to power last year following the withdrawal of US and NATO forces. Foreign aid was cut off almost immediately, sanctions were imposed, bank transfers halted, and trade came to a halt as many countries refused to recognize the new government. Nearly half of the country’s 39 million people are at risk of starvation and most government employees, including doctors, nurses and teachers, have not received salaries for months. A recent earthquake killed over 1,000 people and made matters worse.
Four out of 10 Argentines are poor and their central bank has little reserves to guard against the devaluation of the peso. This year the inflation rate is estimated to be 70 percent. Millions of Argentines survive thanks to soup kitchens and state aid programs, many of which are run by powerful social movements linked to the ruling party. According to his opponents, a recent deal with the IMF to restructure a $44,000 million loan is being questioned for concessions that could stifle economic recovery.
Egypt’s inflation rate reached 15% in April, with nearly a third of its 103 million people living in poverty. The population was already enduring an ambitious reform program that included severe austerity measures, such as cuts to fuel, water and electricity subsidies. The central bank raised interest rates to combat inflation and devalued the currency, which would make it difficult to pay off a large foreign debt. Egypt’s reserves dwindled. Its neighbors Saudi Arabia, Qatar and the United Arab Emirates said they would collect and invest $22 billion to help Egyptians.
This small country had one of the fastest growing economies before the pandemic. But their debt has mounted and, like Sri Lanka, they are trying to renegotiate their payments. According to WB, its foreign reserves are equal to less than two months of imports. And the 30% devaluation of its currency, the kip, further complicates things.
Like Sri Lanka, Lebanon suffers from a toxic combination: its depreciating currency, everything in short supply, high levels of inflation and looming famine, long lines at gas stations and a burgeoning middle class. It is also coming off a protracted civil war and its recovery has been hampered by failed government and terrorist attacks. Proposals to increase taxes in 2019 sparked months of protests. The local currency collapsed and Lebanon defaulted on its debt, then $90 billion, or 170% of its GDP. It is one of the tallest in the world. Its currency was devalued by nearly 90% in June 2021 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 have wreaked havoc in Myanmar, especially after the February 2021 military coup that toppled the government of Aung San Suu Kyi. This led to economic sanctions. The economy contracted 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 due to armed conflict and political violence. The situation is so uncertain that the World Bank did not make a 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 that was frozen after the ouster of Prime Minister Imran Khan’s government in April. A minister’s call to reduce tea consumption to reduce import costs, which amount to $600 million, caused deep unease. The Pakistani rupee has depreciated by 30% in the last one year. To satisfy the IMF, Prime Minister Shahbaz Sharif raised the price of fuel, eliminated its subsidies, and imposed a 10% tax on vital industrial sectors. By the end of March, Pakistan’s stockpiles were equal to two months of imports.
Deteriorating government finances and a widening trade and capital account deficit add to the problems for Turkey, which has high inflation, mounting debt and high unemployment rates. The central bank is using its foreign exchange reserves to address the crisis. Tax cuts and fuel subsidies undermine the government’s finances. Turkey’s external debt amounts to 54% of its GDP, an unsustainable level.
It suffers from inflation of over 130% and there are fears of a repeat of the hyperinflation of 2008, when it reached 500,000%. The economy has been battered by years of deindustrialisation, corruption, lack of investment, low exports and high debt. Inflation makes people distrust the national currency and strive to get dollars. Many people skip meals.
Munir Ahmed (Islamabad, Pakistan) and Krishna Francis (Colombo, Sri Lanka) contributed to this report.