The economy today
Will the crisis in Sri Lanka spread to other vulnerable countries?
Audio 03:38
Anti-government protesters storm the house of the Sri Lankan president on July 9, 2022. REUTERS - DINUKA LIYANAWATTE
By: Dominique Baillard Follow
3 mins
In Sri Lanka the president has promised to resign this weekend against the backdrop of a serious economic and social crisis.
Will other emerging countries experience a similar fate in the coming months?
Advertising
Sri Lanka was the first country to default this year, in April.
Since then, the most alarmist experts have warned of the risk of cascading bankruptcy.
According to the World Bank's chief economist, Carmen Reinhart, this prospect is no longer a hypothesis, it is already a reality.
In an attempt to avoid default and to find new money, several countries have appealed to the IMF.
This is the case of Ghana, Tunisia, Pakistan, three of the countries most at risk identified by the Bloomberg agency.
El Salvador and Egypt complete this list of the most vulnerable.
The economic information agency estimates that 19 countries are now on the verge of collapse.
Their number doubled in six months.
This concerns 900 million people.
Do these countries share common traits with Sri Lanka?
It was the repeated power cuts that plunged the Indian Ocean archipelago into a deep crisis.
The roots of the evil are first linked to the pandemic which caused the fall in tourist receipts.
And to the poor governance of the clan in power.
But it is the current global economic context that has accelerated the descent into hell.
Inflation today at 50% has pushed up the energy bill.
Due to a lack of sufficient foreign exchange reserves, Sri Lanka found itself unable to import enough oil to run power plants and unable to repay its debt.
The impact of the Covid, the weight of the debt and this difficulty in importing essential raw materials for lack of foreign currency,
Should we fear a domino effect as there was in the past in Asia or Latin America?
The current situation is partly comparable to the debt crisis that plagued Latin America in the 1980s. As today, the Federal Reserve had suddenly raised its interest rates to fight inflation, which had weakened these emerging countries.
Mexico then defaulted, dragging the other countries of the region down with it.
But since then, developing countries have made a giant leap forward.
There are certainly weak links today, but the major emerging countries, from India to Brazil via Mexico or Thailand, are currently much more resilient.
They have comfortable foreign exchange reserves and a much more balanced balance of payments than forty years ago.
Since the beginning of the year, capital has flowed back en masse from emerging countries
50 billion dollars would have left these countries since the beginning of the year, a historic ebb, unheard of for 17 years.
But in the strongest countries, we also see that local investors have sometimes taken over from the stock market, that they have become the first investors, as is the case in particular in Thailand or Mexico.
The current crisis remains concentrated in the most fragile countries, where political power is weak and contested.
It is not likely to spread to the rest of the world.
On the other hand, it will be severe for the populations concerned, threatened by the food and social crisis.
They could endure difficulties comparable to those experienced by inhabitants in a state of chronic hyperinflation such as Zimbabwe, Sudan, Lebanon, Syria or Venezuela, countries where the
Newsletter
Receive all the international news directly in your mailbox
I subscribe
Follow all the international news by downloading the RFI application
google-play-badge_FR
Sri Lanka
Economic crisis