The head of the International Monetary Fund (IMF), Kristalina Georgieva, has cited the example of the unprecedented economic crisis in Sri Lanka to warn other countries that they could face a similar situation if faced with high debt and limited policy space.
“I wish the global economic outlook was as clear as the skies in Bali, but unfortunately that is not the case. The outlook is considerably darkened and the uncertainty is exceptionally high. Downside risks that the IMF had previously warned have now materialized Monetary Fund director Kristalina Georgieva said during the meeting of G20 finance ministers and central bank governors in Indonesia.
“Countries with high debts and limited policy space will face additional tensions. Look no further than Sri Lanka as a warning sign,” Ms Georgieva said on Saturday.
The IMF-MD’s comments came as Sri Lanka is going through the worst economic crisis and is in a difficult position where it cannot afford its essential imports, fuel, food and medicines due to an acute forex crisis.
The government declared bankruptcy in mid-April by refusing to pay its international debt.
President Gotabaya Rajapaksa was removed from power last week for his poor handling of the economy.
Ms Georgieva said developing countries had also experienced sustained capital outflows for four months in a row, jeopardizing their dreams of catching up with advanced economies.
While she didn’t directly name countries, the same global headwinds — rising inflation and interest rate hikes, depreciating currencies, high debt and dwindling foreign exchange reserves — have hit other economies in the region, the BBC reported.
Pakistan is one of the countries that has witnessed a shaky economy for quite some time.
Pakistan’s fuel prices have risen by about 90 percent since the end of May after the government ended fuel subsidies. It is trying to curb spending as it negotiates with the IMF to resume a bailout program, the report said.
The economy is struggling with rising commodity prices. In June, annual inflation reached 21.3 percent, the highest in 13 years, the report said.
The Maldives and Bangladesh are two countries that are on the brink of witnessing an economic crisis if the situations are not brought under control.
The Maldives has seen its national debt swell in recent years and is now well above 100 percent of GDP.
Like Sri Lanka, the pandemic has hammered the economy of the Maldives, which relied heavily on tourism.
On the other hand, inflation in Bangladesh reached its 8-year high in May at 7.42 percent, the report said.
With reserves dwindling, the government has acted quickly to curb non-essential imports, relax rules to attract remittances from millions of migrants living abroad and reduce foreign travel for officials, the report said.