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Denis Sergienko • 2022-09-14

South Asian Crisis: Sri Lanka Syndrome Puts other Countries at Risk

South Asian Crisis: Sri Lanka Syndrome Puts other Countries at Risk

South Asian countries are this close to experiencing a fuel and food crisis looming large. While Sri Lanka has already been mired in a devastating economic situation, the situation across the region may get even worse due to poor economic management, soaring inflation, and indebtedness.

Sri Lanka Syndrome

Sri Lanka was expected to become the new Singapore of South Asia. It showed some good development results and economic growth over the last few years. However, poor economic management has led to rapidly growing inflation and indebtedness.

As a result, Sri Lanka can be the first ever South Asian country to declare a default on foreign debt in the last 2 decades. The situation is worsening by the fact that the World Bank will no longer provide funds unless deep structural changes in the country’s government are made. So, the current president headed to Singapore to clean up the mess.

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Experts say that Sri Lanka may not be alone in its problems. The same situation can be observed in other countries in the South-Pacific region. What’s more, the Sri Lanka syndrome pushes the economies of those countries to a brick.

The Situation around South-Pacific Region

In Pakistan, the local rupee has recently hit the bottom. It reached 233 USD per 1 rupee. It is the lowest low over the last 160 years. What’s more, the foreign currency reserve has dived to $9.8 billion. To improve the situation somehow, the government decided to sell assets to foreign countries with no extra checks.

Nepal has also been gripped by panic. Rising import costs led to an increase in fuel and food prices. Meanwhile, the foreign reserve has plunged to an extremely dangerous level. The situation is getting worse, as Nepal has signed up for a number of Chinese-funded projects, which resulted in foreign debt escalation.

The Himalayan businesses face problems in getting loans. It refers to all major economic sectors of the region including manufacturing, tourism, agriculture, and energy. Heavily dependent on tourism Maldives is now suffering from a 100% foreign debt increase, as the result of the pandemic explosion. JPMorgan experts warn the country is likely to declare default on foreign debt in 2023.

Bangladesh is the only region that is safe from danger. The country managed to increase goods import by 39% and create pressure on the foreign reserve in USD keeping it at a satisfactory level. At the same time, Bangladesh is extremely dependent on imports. It involves both export-oriented sectors and domestic consumption.

The situation in the South-Pacific region is very uncertain. Local economies are under a threat. Most countries are likely to declare a default. In this situation, investors should apply time-tested techniques to trade during the market crash. Another safe way is to copy proven experts who already have well-established strategies that have proved their efficiency.