How Sri Lanka’s economic collapse raises alarm bells for other emerging markets

During the 2010s, Sri Lanka had one of many fastest-growing economies in Asia. 

Things took a 180-degree flip on the finish of the last decade because the nation’s financial system stumbled. In May 2022, the federal government defaulted on its debt for the primary time in historical past. 

As inflation continued to spiral uncontrolled, with a large scarcity of meals, gas and drugs for the nation’s 22 million individuals, Sri Lankans took to the road, forcing the president, Gotabaya Rajapaksato resign and flee the nation. 

Even although Sri Lanka has a brand new president, Ranil Wickremesinghe, protests proceed. Inflation has risen previous 50% — and may hit 70% — making it more durable for individuals to outlive. 

Many consultants imagine that Sri Lanka’s story is a warning signal for emerging markets. 

“Sri Lanka is facing its worst economic collapse in its modern history,” mentioned Sumudu W. Watugala, assistant professor of finance on the Kelley School of Business at Indiana University. “This is due to long-standing structural weaknesses exacerbated by a series of idiosyncratic shocks. Sri Lanka’s crisis can be a warning sign to other developing nations because it’s a classic emerging market crisis in many ways.”

So what does Sri Lanka’s economic disaster sign about related economies and emerging markets? Watch the video to study extra dangers concerned in emerging markets, how Sri Lanka’s financial system collapsed and the nation’s path ahead. 

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