Sri Lanka's annual inflation rate surged to more than 70% in August as it struggled with its worst economic crisis in over seven decades. Official data also showed food prices rose by 84.6% compared to a year ago.
JULY 18: "Countries with high debt levels and limited policy space will face additional strains. Look no further than Sri Lanka as a warning sign," said IMF Managing Director Kristalina Georgieva on Saturday.
She said developing nations had also been experiencing sustained capital outflows for four months in a row, putting their dreams of catching up with advanced economies at risk.
Sri Lanka is struggling to pay for crucial imports like food, fuel and medicine for its 22 million people, as it battles a foreign exchange crisis. Inflation has soared about 50%, with food prices 80% higher than a year ago. The Sri Lankan rupee has slumped in value against the US dollar and other major global currencies this year.
Many blame ex-president Gotabaya Rajapaksa for mishandling the economy with disastrous policies whose impact was only exacerbated by the pandemic.
Over the years, Sri Lanka had built up a huge amount of debt - last month, it became the first country in the Asia Pacific region in 20 years to default on foreign debt.
Officials had been negotiating with the IMF for a $3bn (£2.5bn) bailout. But those talks are currently stalled amid the political chaos.
But the same global headwinds - rising inflation and interest rate hikes, depreciating currencies, high levels of debt and dwindling foreign currency reserves - also affect other economies in the region.
China has been a dominant lender to a several of these developing nations and therefore could control their destinies in crucial ways. Buy it's largely unclear what Beijing's lending conditions have been, or how it may restructure the debt.
Where China is at fault is, according to Alan Keenan from International Crisis Group, is encouraging and supporting expensive infrastructure projects that have not produced major economic returns.
"Equally important has been their active political support for the ruling Rajapaksa family and its policies...These political failures are at the heart of Sri Lanka's economic collapse, and until they are remedied through constitutional change and a more democratic political culture, Sri Lanka is unlikely to escape its current nightmare."
Worryingly, other countries appear to be on a similar trajectory.
Laos
The landlocked East Asian nation of more than 7.5 million people has been facing the risk of defaulting on its foreign loans for several months.
Now, a rise in oil prices because of the Russian invasion of Ukraine has put further strain on fuel supplies, pushing up the cost of food in a country where an estimated third of people live in poverty.
Local media outlets have reported long lines for fuel, and said some households have been unable to pay their bills.
Laos' currency, the kip, has been plunging and is down by more than a third against the US dollar this year.
Higher interest rates in the US have strengthen the dollar, and weakened local currencies, increasing their debt burden and making imports costlier.
Laos, which is already heavily in debt, is struggling to repay those loans or or pay for imports like fuel. The World Bank says the country had $1.3bn of reserves as of December last year.
But its total annual external debt obligations are around the same amount until 2025 - equivalent to about half of the country's total domestic revenue.
As a result, Moody's Investor Services downgraded the communist-ruled nation to "junk" grade last month, a category in which debt is considered high risk.
China has loaned Laos huge amounts of money in recent years to fund big projects like a hydropower plant and a railway. According to Laotian officials speaking to Chinese state media Xinhua, Beijing has undertaken 813 projects worth more than $16bn last year alone.
Laos' public debt amounted to 88% of its Gross Domestic Product (GDP) in 2021, according to the World Bank, with almost half of that figure owed to China.
Experts point to years of economic mismanagement in the country, where one party - the Lao People's Revolutionary Party - has held power since 1975.
But Moody's Analytics has flagged increased trade with China and the export of hydroelectricity as positive developments: "Laos has a fighting chance of avoiding the danger zone and the need for a bailout," economist Heron Lim said in a recent report.
Pakistan
Fuel prices in Pakistan are up by around 90% since the end of May, after the government ended fuel subsidies. It's trying to rein in spending as it negotiates with the IMF to resume a bailout programme.
The economy is struggling with the rising cost of goods. In June, the annual inflation rate hit 21.3%, highest it has been in 13 years.
Like Sri Lanka and Laos, Pakistan also faces low foreign currency reserves, which have almost halved since August last year.
It has imposed a 10% tax on large scale industry for one year to raise $1.93bn as it tries to reduce the gap between government revenue and spending - one of the IMF's key demands.
"If they are able to unlock these funds, other financial lenders like Saudi Arabia and the UAE [United Arab Emirates] may be willing to extend credit," Andrew Wood, sovereign analyst at S&P Global Ratings told the BBC.
Former prime minister Imran Khan who vowed to fix some of these problems was ousted from power, although the faltering economy is not the only reason for that.
Last month, a senior minister in Pakistan's government asked citizens to reduce the amount of tea they drink to cut the country's import bills.
Again China plays a role here, with Pakistan reportedly owing more than a quarter of its debt to Beijing.
"Pakistan appears to have renewed a commercial loan facility vis-a-vis China and this has added to its foreign exchange reserves and there are indications they will reach out to China for the second half of this year," Mr Wood added.
Maldives
The Maldives has seen its public debt swell in recent years and it's now well above 100% of its GDP.
Like Sri Lanka, the pandemic hammered an economy that was heavily reliant on tourism.
Countries that depend so much on tourism tend to have higher public debt ratios, but the World Bank says the island nation is particularly vulnerable to higher fuel costs because its economy is not diversified.
US investment bank JPMorgan has said the holiday destination is at risk of defaulting on its debt by the end of 2023.
Bangladesh
Inflation hit an 8-year high in May in Bangladesh, touching 7.42%.
With reserves dwindling, the government has acted fast to curb non-essential imports, relaxing rules to attract remittances from millions of migrants living overseas and reducing foreign trips for officials.
"For economies running current account deficits - such as Bangladesh, Pakistan and Sri Lanka - governments face serious headwinds in increasing subsidies. Pakistan and Sri Lanka have turned to the IMF and other governments for financial assistance," Kim Eng Tan, a sovereign analyst at S&P Global Ratings told the BBC.
"Bangladesh has had to re-prioritise government spending and impose restrictions on consumer activities," he said.
Rising food and energy prices are threatening the pandemic-battered world economy. Now developing nations that have borrowed heavily for years are finding that their weak foundations make them particularly vulnerable to global shockwaves.
With inputs from BBC
JULY 10: Neither the PM nor the president were in the buildings at the time.
Hundreds of thousands descended on the capital Colombo, calling for Mr Rajapaksa to resign after months of protests over economic mismanagement.
Mr Rajapaksa will step down on 13 July. PM Wickremesinghe has agreed to resign.
The speaker of parliament said the president decided to step down "to ensure a peaceful handover of power" and called on the public to "respect the law".
The announcement triggered an eruption of celebratory fireworks in the city.
After Saturday's events, the United States appealed to the Sri Lankan leadership to act promptly to resolve the country's economic crisis.
One protester, Fiona Sirmana, who was demonstrating at the president's house, said it was time "to get rid of the president and the prime minister and to have a new era for Sri Lanka".
"I feel very, very sad that they didn't go earlier because had they gone earlier there wouldn't have been any destruction," she told Reuters.
Dozens of people were injured in Saturday's protests, and a spokesperson for Colombo's main hospital told AFP news agency that three people were being treated for gunshot wounds.
Sri Lanka is suffering rampant inflation and is struggling to import food, fuel and medicine amid the country's worst economic crisis in 70 years.
It has run out of foreign currency and has had to impose a ban on sales of petrol and diesel for private vehicles, leading to days-long queues for fuel.
The extraordinary events of Saturday appeared to be the culmination of months of mainly peaceful protests in Sri Lanka.
Huge crowds converged on the official residence of President Rajapaksa, chanting slogans and waving the national flag before breaking through the barricades and entering the property.
Footage online showed people roaming through the house and swimming in the president's pool, while others emptied out a chest of drawers, picked through the president's belongings and used his luxurious bathroom.
The contrast between the luxury of the palace and the months of hardship endured by the country's 22 million people was not lost on the protesters.
"When the whole country is under such strain people have come here to release that pressure. When you see the luxuries in this house it is obvious that they don't have time to work for the country," Chanuka Jayasuriya told Reuters.
Ousted in a day of fury
These are some extraordinary times for Sri Lanka.
After a day of fury and violence, the two senior leaders of the country have agreed to step down.
The news triggered jubilation at the main protest site in Colombo. Firecrackers were set off in many parts of the city.
I am at the Galle Face protest site - many protesters have started returning home, thousands are still present. Some have been singing and playing musical instruments, celebrating.
What a turnaround of events. A few days ago a photo of President Rajapaksa and Prime Minister Wickremesinghe smiling in parliament was widely shared on social media.
Many vented their anger, saying the two men appeared to be happy while millions were struggling to eat three meals a day. But a week is a long time in politics.
Mr Rajapaksa vacated his official residence on Friday as a safety precaution ahead of the planned protests, two defence ministry sources said, according to Reuters.
Although it is Mr Rajapaksa's official residence, he usually sleeps at a separate house nearby.
The BBC has been unable to confirm the president's whereabouts.
Protesters also set fire to Prime Minister Wickremesinghe's private home in an affluent neighbourhood of Colombo.
He said earlier that he was willing to resign to ensure the safety of civilians and to make way for an all-party government, but soon after his announcement videos started circulating of his house up in flames.
The prime minister lives with his family in the private home and uses his official residence for official business only.
Whether or not the president's and the prime minister's planned resignations will be enough to appease the protesters is not yet clear.
"Just two resignations alone will not satisfy the demands, the demand of a system change, but at least this is a start if the president and the prime minister depart," said Bhavani Fonseka, a prominent human rights lawyer in Colombo.
"There has to be a peaceful transition of power which is yet to be seen," she warned.
With inputs from BBC
Sri Lanka raised rates of interest to the best degree in 20 years on Thursday, saying it needed to head off runaway inflation to keep away from even deeper ache for an economic system that’s already in disaster and is shrinking
According to the World Bank’s latest report, Bangladesh (South Asian country) has a strong track record of development and prosperity. Over the last decade, it has been one of the world's fastest growing economies, owing to a demographic dividend, robust ready-made garment (RMG) exports, remittances, and stable macroeconomic conditions. Even after the COVID-19 pandemic, the country has experienced a rapid economic recovery.
Bangladesh tells the world a remarkable story of poverty reduction and development. From being one of the poorest nations at birth in 1971, Bangladesh reached lower-middle income status in 2015. It is on track to graduate from the UN’s Least Developed Countries (LDC) list in 2026. Poverty declined from 43.5 percent in 1991 to 14.3 percent in 2016, based on the international poverty line of $1.90 a day (using 2011 Purchasing Power Parity exchange rate). Moreover, human development outcomes improved along many dimensions.
On the other hand, the South Asian Island nation of Sri Lanka is currently going through an extreme economic crisis. Foreign exchange reserves have fallen so low that school examinations have been closed indefinitely due to a lack of imported paper. In addition to cooking gas, there has been a shortage of kerosene or petrol. Blackout has started due to a lack of electricity.
The situation is so dire that due to inflation, high unemployment, and shortages of almost all necessities, many Sri Lankans are fleeing their country in the hope of a better life abroad. Countless Sri Lankans are now being forced to do something other than their main occupation as not everyone can afford to leave the country. The suffering of the people of that country is coming up in the world media.
The country has never been in such a bad situation since independence in 1947. To cope with the situation, the Sri Lankan government has asked for a new loan of 1.5 billion US dollars from neighboring India. When Sri Lanka faced problems, Bangladesh provided 250 million in currency assistance for the first time. This was the first loan from Bangladesh for any country. They again asked for a loan from Bangladesh. Besides, they have been repaying loans of different countries through the exchange of goods.
Sri Lanka was quite capable of human resources and internal prosperity. Then why is there a crisis today? In this regard, economic analysts have brought forward various factors, from which different countries can learn lessons in their current and future plans.
Sri Lanka has undertaken several mega projects in their country for more than a century. These include seaports, airports, roads, and other projects that are currently considered unnecessary and redundant. Different governments of Sri Lanka have taken loans from different sources at home and abroad. As a result, their foreign exchange reserves gradually ran out. According to the country's economists, there has been little foreign direct investment in Sri Lanka in the last 15 years. Instead of foreign investment, various governments have focused on borrowing.
The country's government has issued sovereign bonds since 2007 to raise money. This type of sovereign bond is sold when the expenditure is more than the income of a country. Such bonds are sold in the international capital market to raise money. That is what Sri Lanka has done. But the country did not give much thought to how the money would be paid. At present, Sri Lanka has a debt of 12.5 billion for that bond alone. Besides, the government has also borrowed from domestic sources.
The once self-sufficient country is also in dire straits due to tax cuts, reduced income from tourism remittances, and unplanned decisions in agriculture. Different countries including Bangladesh have to learn from this situation. The world economic situation has begun to change rapidly since the Russia-Ukraine war, at which time any country could fall into a new crisis.
On the other hand, the economy of these 220 million countries (Pakistan) is in political and economic turmoil. Pakistan is in debt, amounting to 130 billion USD. At the same time, inflation seems to have picked up speed (12 percent). Over the past three years, Pakistan's progress has stalled.
The recent political instability has created a crisis in Pakistan. The recent political unrest has shaken the business and industrial sectors. The country's economy is already fragile due to the depreciation of the rupee, declining reserves, rising commodity prices, and revenue shortfalls.
Not only has the currency depreciated, but the wheel of Pakistan's economy has slowed down over the past three years. The recent political unrest has shaken the business and industrial sectors. The instability in Pakistan's politics is showing no signs of abating anytime soon. The Pakistani rupee is depreciating. The rupee depreciated against the dollar on Thursday, hitting a new record. 188 Pakistani rupees are available for one dollar. Never in the history of Pakistan has the rupee depreciated so much.
During the outgoing Prime Minister Imran Khan’s tenure, there has been an increase in the amount of debt, ranging from inflation, to a record fall in the value of the Pakistani currency, with the finance minister changing three times.
On the other hand, Bangladesh is currently a wonder of development. The implementation of big projects is now just a matter of time. City facilities have also been ensured in the villages. Visible flyovers on most of the roads in the capital. Metrorail will be launched in a few days. The long Padma bridge is not a dream now, it is real. Economists speculate that the GDP growth rate could rise to one percent for the bridge. This bridge has given new hope to the people of the south. The implementation of such a project with the government's own funding was at one time unimaginable. The country is moving forward with a sound plan.
The present government in Bangladesh has shown great prudence and foresight in the progress of Bangladesh. 100 economic zones are being formed. Investment is coming from different countries. Foreign exchange reserves are adequate (45 billion USD, January 2022), and remittances are satisfactory. It can be said that every economic foundation of Bangladesh is still in a strong position.
During the Sri Lankan corona, the tourism industry was almost destroyed by giving more importance to the health sector. Unnecessary development projects were carried out with loans, the organic agriculture sector has come to a standstill and the tax on public welfare has been greatly reduced but the economy of Bangladesh was active during the pandemic. Emphasis was laid on revenue collection and the agricultural sector of Bangladesh was strong.
Experts believe that Bangladesh is in a positive position in terms of foreign exchange reserves, remittances, and export earnings.
Bangladesh's foreign exchange reserves now stand at more than 45 billion, despite rising import costs. With which the country can pay imports of goods for six months. Sri Lanka, on the other hand, has less than two billion dollars. It is not possible to meet the cost of one week's import.
On the other hand, Bangladesh's growth rate was way above Pakistan, even before the pandemic in 2018-19, it was 7.8% compared to Pakistan's 5.8%. Various international organizations, including the World Bank, the World Economic Forum, and the Economic Intelligence Unit, have identified Bangladesh’s economic development as a “wonderful puzzle.” While the current economy of Bangladesh is 410 billion, the size of Pakistan’s economy is about 260 billion.
Bangladesh has improved its quality of life, economic strength, prosperity, education, and research in every field. Due to the global coronavirus pandemic, Bangladesh’s growth has slowed down. But where the growth of all the developed countries of the world was negative in these years, the achievement of Bangladesh was also noticeable.
Successful statesman Sheik Hasina has achieved full potential to move from a least developed country to a developing country. It has been possible because of people’s hard-work and strong leadership along with political stability, high flow of FDI, empowerment of women, unique poverty alleviation model, inclusivity of economy, etc.
‘Bangladesh’ tells a ‘miracle story’ while Sri Lanka and Pakistan share disaster tales.
COLOMBO, March 8: Sri Lanka's central bank has allowed the rupee to devalue to 230 per U.S. dollar considering the severity of the external shocks and recent developments domestically.
The central bank said on Monday it will closely monitor the emerging macroeconomic and financial market developments, both globally and domestically, and will stand ready to take further measures as appropriate.
The aim is to achieve stability in inflation, the external sector, the financial sector, and real economic activity, according to the bank.
"In that context, greater flexibility in the exchange rate will be allowed to the markets with immediate effect. The central bank is also of the view that forex transactions would take place at levels which are not more than 230 rupees per U.S. dollar," the central bank said in a statement.
Earlier the rupee was pegged to the dollar at 200. A number of Sri Lankan economists have been urging the government to devalue the rupee in the past few months, stating that this policy was creating forex shortages and parallel exchange rates.
