During the past few months, everyone around the globe watched the Sri Lankan economy rapidly crash until it finally hit its lowest point. With high debt, lack of access to fuel, food, medicine and a President on the run - the country's problems were never-ending. While the President has finally resigned while still on the run, one can only hope that the economic downfall the country is in will finally take a turn for the better.
As millions of Sri Lankans are now faced with living the reality of what happens to a country when debt piles up to unimaginable amounts, other Asian countries might be closely following suit as the International Monetary Fund (IMF) has stated that other countries could be in similar troubles and should look at the Sri Lankan crisis as a warning sign.
The telltale signs
While it is common sense to avoid repeating a country's mistakes, it appears that many Asian countries are mimicking the problems Sri Lanka faced rather than taking steps to avoid being the next in line. Some of the common warning signs of countries being close to defaulting on their foreign currency reserves appear to be high inflation, being low on fuel and changes to the tax regime in order to try and curb the arising issues. Some of the neighbouring countries to Sri Lanka appear to have all the telltale signs of deep-rooted economic issues as Laos, Pakistan, the Maldives and Bangladesh are all having high inflation, fuel issues and increased debt.
How did we get here?
It is no secret that the rest of the world has been desperately trying to keep up with the fast-paced life style in the developed nations when it comes to infrastructure and technology. Developing countries do everything they can to climb up the ladder, and dream of the day when they will be 'first-world' developed nations, with access to all of the world's best facilities. However, just as everything has a cost, so does development. In this manner, most countries end up in debt up to their necks.
One of the biggest problem that many people bring up is the issue of borrowing beyond one's means. With easy access to loans for development projects from countries such as China, many Asian developing nations take on large debt, making repayment a 'later problem.' However, it appears that by the time repayment is due, the countries will be unable to repay the loans due to the economic crisis as well as the sheer amount of debt that they are in.
While opinions differ on whether China practices debt trap diplomacy, it appears that countries like the Maldives and Pakistan are heavily indebted to China. With both countries already owing China millions of dollars, it appears that neither country's loans will be re-structured or forgiven.
To add to this, the whole world was faced with a two-year-long pandemic that brought everything to a halt. This is one of the main factors that contributed to the economic downfall of several developing nations in Asia, especially those countries that heavily relied on the tourism industry.
One good example of this would be the Maldives, one of the most popular tourist destinations around the world. Unknown to many of those who visit this island nation, as of this year the country has hit their lowest economic point with the country's public debt above 100 percent of GDP. With the US investment bank JPMorgan stating that the country's debt to default by the end of the year 2023, many fear that the Maldives might be next in line to face the crisis Sri Lanka is currently in.
Another contributing factor to the struggling nations is the ongoing conflict between Russia and China which has caused a fuel shortage in many countries. While most Asian countries do not directly depend on fuel from Russia, the shortage caused a hike in prices all over the world. This undoubtedly left a big impact on Asian countries as well. While it might not seem like a big issue on the surface, a hike in fuel prices caused an increase in production in all sectors, resulting in inflation.
The economic problems in some countries are so unimaginable to the point where a senior Minister of Pakistan, Ahmed Iqbal even asked the citizens to cut down on the amount of tea that they drink in order to lower the high import bills. If this statement sounds familiar, it's because a similar statement was made in Malaysia about how eating out has been contributing to the country's rising inflation. While these statements might seem silly, they go to show exactly how deep the debt issues are in many Asian countries.
In many countries, the government has already started an increase in taxes in order to be able to dig their way out of the debt that the countries are in. With Pakistan's annual inflation rates reportedly at 21.3 percent annually, Bangladesh at 7.42 percent and the Maldives closely following behind with discussions to increase their GST and TGST rates, it appears that the citizens are faced with paying for their governments' mismanagement of the countries' economy.