Sri Lanka is the First Domino to Fall in the Face of a Global Debt Crisis
The South Asian country is the first to buckle under economic pressures compounded by geopolitics, but it won’t be the last. To quote a professor in Australia (of Bangladesh origin), “The ruling coterie in Sri Lanka is corrupt from the toe to the head. They plundered the country, and pocketed the grants and loans from overseas. The consequences were inevitable. The Sri Lankan community in Australia also chanted slogans against these corrupt politicians. Pakistan , Bangladesh, and Sri Lanka politicians mostly are mired in corruption and mismanagement. B’Desh might confront similar challenges.”
Larry Elliott writes in The Guardian: The departure of Sri Lanka’s prime minister, Mahinda Rajapaksa, follows weeks of protest and a deepening crisis. There is no bankruptcy system for states but if there was then the south Asian country – down to its last $50m (£40m) of reserves – would be first in line to use it. A team from the International Monetary Fund (IMF) this week started work with officials in Colombo over a bailout that will include a tough package of reforms as well as financial support. But as the IMF and its sister organization, the World Bank, know full well, this is about more than the mismanagement of an individual country. They fear Sri Lanka is the canary in the coalmine. Across the world, low- and middle-income countries are struggling with a three-pronged crisis: the pandemic, the rising cost of their debt, and the increase in food and fuel prices.
David Malpass, the World Bank’s president, explained his concerns at the organization’s spring meeting last month. “I’m deeply concerned about developing countries,” Malpass said. “They are facing sudden price increases for energy, fertilizer and food, and the likelihood of interest rate increases. Each one hits them hard.” The UN’s trade and development arm, UNCTAD, said in a recent report that there were 107 countries facing at least one of three shocks: rising food prices, rising energy prices or tighter financial conditions. All three shocks were being faced by 69 countries – 25 in Africa, 25 in Asia and the Pacific, and 19 in Latin America and the Pacific. The list of countries that look vulnerable is long and varied. The IMF has opened rescue talks with Egypt and Tunisia – both big wheat importers from Russia and Ukraine – and with Pakistan, which has imposed power cuts because of the high cost of imported energy. Sub-Saharan African countries being carefully watched include Ghana, Kenya, South Africa and Ethiopia. Argentina recently signed a $45bn debt deal with the IMF, but other Latin American countries at risk include El Salvador and Peru. There has been speculation that Turkey would be the first domino to fall, but despite an annual inflation rate of 70% and an unconventional approach to economic management, it is still standing. Unlike some other countries under threat, Turkey is able to feed its own people…