Long-term power outages, no oil and gas, shortages of food and medicine, and inflation continue to soar... In recent months, Sri Lanka, a South Asian island country with a population of 22 million, has fallen into the most serious economic crisis since independence in 1948 .
On July 9, local time, after Sri Lankan people who had been demonstrating on the streets day and night rushed into the presidential palace in anger, the country's President Gotabaya Rajapaksa immediately announced his resignation and in the early morning of today (13th) Arrive at Maldives and leave the political stage for the time being. Prime Minister Wickremesinghe also declared a national emergency. Earlier, the Sri Lankan government had officially declared "national bankruptcy" and became the first country in this century to default on its foreign debt.
President Gotabaya Rajapaksa fled Sri Lanka. Associated Press report screenshot
analysis believes that the crisis in this South Asian emerging economy country is closely related to the international situation changes, poor domestic economic management, improper governance, etc. What is worrying is that many developing countries are currently in the same predicament of economic deterioration. Public opinion speculates whether Sri Lanka is just the first card in the "dominos" to fall? Who will be "bankrupt" next?
01
Why did the "Day of National Bankruptcy" come?
Due to its terrain, Sri Lanka is known as the "Pearl on the Indian Ocean ". In 2018, as a dynamic emerging economy in South Asia, Sri Lanka's GDP per capita was approximately US$4,100, which is higher than that of India. It's twice as high. The employment rate and bank stability indicators are also very impressive. The scenery of the "Pearl of the Indian Ocean" at that time was very enviable. Compared with the "change in style" today, it is really regrettable.
In fact, the root cause of the crisis in Sri Lanka has long been disclosed. A working report issued by the Asian Development Bank showed that the country foreign trade has a long-term deficit, with "insufficient revenue and excess consumption." Unable to afford its import needs, it borrowed a lot of foreign debt.
You must know that tourism is an important economic pillar of the country, but the terrorist attacks that shocked the world in 2019 severely damaged Sri Lanka's tourism industry. What's even worse is that after the COVID-19 epidemic swept the world, its tourism industry suffered a devastating blow and its ability to earn foreign exchange was greatly weakened. The outbreak of the Russia-Ukraine conflict also caused Sri Lanka's cost of importing food and oil to soar, which in turn led to the trade deficit getting worse.
Sri Lanka is experiencing fuel shortage, making it difficult for people to travel. On July 11, people waited for the bus at the bus station in Colombo, the capital of Sri Lanka. Xinhua News Agency pictures
In the face of the above pressure, the Sri Lankan government did not adopt an appropriate response plan. President Gotabaya began to implement fiscal deficit and tax cut policies in 2019, resulting in a significant reduction in government revenue. In addition, in order to realize the green transformation of the country's agriculture, in April 2021, the Sri Lankan government began to ban pesticides and herbicides nationwide and ordered the country's 2 million farmers to use organic farming methods. However, the self-defeating situation caused a sharp decline in agricultural output, forcing Sri Lanka to purchase foreign grains at high prices.
At the same time, Sri Lanka's debt pressure has become greater as the Federal Reserve raises interest rates and the dollar appreciates. With the depletion of foreign exchange reserves, the "day of national bankruptcy" has arrived on time, and it has also sounded the alarm for other troubled economies.
02
Whose turn will it be next?
The World Bank recently lowered its economic growth forecast for developing economies to 3.4% from the previous 4.6%, showing the grim economic situation this year. The main reasons are rising food and energy prices, as well as the rapid rise in borrowing costs after the United States raised interest rates.
According to the Wall Street Journal , United Nations data show that food, fuel and financial crises triggered or exacerbated by the Russia-Ukraine conflict may destabilize poorer countries, causing more than 70 countries to follow Sri Lanka's footsteps and incur debts. Breach of contract.
Since March this year, Egypt, Tunisia, Turkey and other countries have experienced high inflation, exchange rates plummeting, and are facing debt defaults. Zambia and Lebanon are seeking international assistance (providing loans or debt restructuring). Pakistan's new government, which came to power in April, also said the country had narrowly avoided a debt default in recent weeks as the cost of fuel imports soared and the foreign exchange reserves held by the central bank shrank severely. The situation in Latin American countries is not optimistic either. Ecuador , Uruguay and many other countries and regions have foreign debt debt ratios far exceeding the international safety line of 20%... Obviously, the global economic crisis has entered a critical moment.
Carmen Reinhart, chief economist of the World Bank, said on July 9: "For low-income countries, the debt crisis is not a hypothesis, but a real risk."
After the debt default, the possibilities that follow It’s a political crisis, like the one in Sri Lanka. Bloomberg News wrote, "A population suffering from high food prices and supply shortages may become a powder keg of political instability."
Russia's "Viewpoint" quoted Mosyakov, an expert from the Russian Institute of Oriental Studies, as saying that the epidemic and Global inflation hits the most vulnerable countries first. "The current world situation is that the most developed countries are facing economic difficulties, and for weak countries, this is actually a death sentence.
(Text丨our reporter Shu Zhiyong)
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