SL crisis warning to nations like Pakistan, B’desh, Maldives: IMF

New York: Sri Lanka is in the midst of a deep and unprecedented economic crisis that has sparked huge protests and seen its president quit after fleeing the country – but other countries could be at risk of similar troubles, according to the head of the International Monetary Fund (IMF), BBC reported.

“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. 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.

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.

Fuel prices in Pakistan are up by around 90 percent 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 program. The economy is struggling with the rising cost of goods. In June, the annual inflation rate hit 21.3 percent, the highest it has been in 13 years.

The Maldives has seen its public debt swell in recent years and it’s now well above 100 percent of its GDP. Like Sri Lanka, the pandemic hammered an economy that was heavily reliant on tourism.

In Bangladesh, inflation hit an 8-year high in May in Bangladesh, touching 7.42 percent. 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.

India to invest more in SL after crisis support of $3.8 bn

India is willing to make more investments in neighboring Sri Lanka after supporting it with $3.8 billion this year, New Delhi’s envoy in Colombo told the Indian Express newspaper.

“The idea is to respond to Sri Lanka’s requests for enabling them to meet their foreign exchange crisis,” said Gopal Baglay, India’s high commissioner in Sri Lanka. “We would like to continue to bring more investment into Sri Lanka because that will help create medium- and long-term capacity to respond within the Sri Lankan economy.”

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