Threatened to be like Sri Lanka, these 4 Asian countries are on the verge of the worst economic crisis

KOMPAS.com – Head of the International Monetary Fund (IMF) warns other countries in Asia are at the same risk Sri Lankawhich faces economy Crysis worst and sparked massive protests that led to the overthrow of its president.

“Countries with high debt levels and limited policy space will face additional pressure. Look at Sri Lanka as a warning sign,” IMF Managing Director Kristalina Georgieva said on Saturday (16/7/2022) as reported by the BBC.

Also read: Sri Lanka Demo Enters its 100th Day, Ethnic Minorities Join Majority Residents Demand Government

He said developing countries had also experienced sustained capital outflows for the fourth month in a row.

This condition puts their dream of pursuing a developed economy in jeopardy. Especially given the increasing global challenges, such as the surge in inflation and rising interest rates, currency depreciation, high levels of debt and reduced foreign currency reserves.

Here are the other Asian countries of concern appear to be on the same trajectory as Sri Lanka according to the IMF.

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1. Laos

The landlocked East Asian nation of more than 7.5 million people, faces the risk of defaulting on its foreign loans for several months.

Now, rising oil prices due to Russia’s invasion of Ukraine are adding to pressure on its fuel supply, and pushing up food prices in a country where a third of the population is estimated to live in poverty.

Local media have reported long lines for fuel and some households unable to pay their bills.

Lao’s currency, the kip, has fallen and is down more than a third against the US dollar this year. Higher interest rates in the US have strengthened the dollar and weakened the local currency, increasing their debt burden and making imports more expensive.

The World Bank said the country had reserves of $1.3 billion as of December last year. But the total liability foreign debt its annual income is almost the same until 2025, or almost half of its total domestic income.

Also read: Sri Lanka Crisis: The Time Bomb That Finally Explodes

Laos’ public debt amounts to 88 percent of Gross Domestic Product (GDP) in 2021, according to the World Bank, with nearly half of that figure owed to China.

As a result, Moody’s Investor Services downgraded the communist-ruled country’s rating to “junk” last month, the category in which debt is considered high risk.

2. Pakistan

Fuel prices in Pakistan is up about 90 percent since late May, after the government ended fuel subsidies. The move was forced to be taken to control spending amid negotiations for a further bailout program from the IMF.

Pakistan’s economy is struggling with rising prices of goods. In June, the annual inflation rate stood at 21.3 percent, the highest in 13 years.

Like Sri Lanka and Laos, Pakistan is also facing shrinking foreign currency reserves by nearly half of its total since August last year.

Also read: 7 Factors Triggering Sri Lanka’s Political Tsunami, From Cost of Living to Debt Traps

His government has imposed a 10 percent tax on large-scale industry for one year, to raise 1.93 billion US dollars. The aim is to try to reduce the gap between government revenues and spending – one of the IMF’s main demands.

“If they can raise these funds, other financial lenders like Saudi Arabia and the UAE (United Arab Emirates) may be willing to lend,” Andrew Wood, analyst at S&P Global Ratings told BBC.

Last month, a senior minister in Pakistan’s government asked its citizens to reduce the amount of tea they drink to cut the country’s import bill.

Chinese lending is once again playing a role here, with Pakistan reportedly owing more than a quarter of its debt to Beijing.

3. Maldives

The Maldives has seen its public debt swell in recent years and is now well above 100 percent of its GDP.

Like Sri Lanka, the pandemic hit the economy of this island nation that relies heavily on tourism.

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Countries that rely heavily on tourism tend to have higher public debt ratios, but the World Bank says the island nation is particularly vulnerable to spikes. fuel prices because the economy is not diversified.

US investment bank JPMorgan said the holiday destination was at risk of defaulting on its debt by the end of 2023.

4. Bangladesh

Inflation Bangladesh in May touched 7.42 percent, its highest level in eight years.

With foreign currency reserves dwindling, his government has acted quickly to curb non-essential imports.

President Abdul Hamid’s administration also relaxed rules to withdraw remittances from millions of immigrants living abroad, and reduced overseas travel for officials.

Kim Eng Tan, sovereign analyst at S&P Global Ratings, told the BBC that in countries with current account deficits – such as Bangladesh, Pakistan and Sri Lanka – governments face serious challenges in increasing subsidies.

Also read: 5 Countries That Bankrupt Before Sri Lanka, How Did They Survive?

Pakistan and Sri Lanka have sought financial assistance from the IMF and other governments.

But “Bangladesh (still) has to re-prioritize government spending and impose restrictions on consumer activity,” he said.

Debt bondage

Rising food and energy prices threaten the world economy hit by a pandemic.

Now developing countries, which have borrowed heavily over the years, are finding that weak economic foundations make them particularly vulnerable to global shockwaves.

China has become the dominant lender to some of these developing countries and may be able to control their fate crucially.

Also read: Sri Lanka’s President Escapes When the Country Goes Bankrupt, How Worse Are the Conditions Now?

The problem is, it’s not clear what the current state of Beijing’s loans will be, or how they can restructure the debt.

China’s fault, according to Alan Keenan of the International Crisis Group, is to encourage and support expensive infrastructure projects, which have not yet generated huge economic returns.

“Equally important is their active political support for the ruling Rajapaksa family and its policies… This political failure was at the heart of Sri Lanka’s economic collapse,” he pointed out.

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