How Sri Lanka’s financial collapse raises alarm bells for different rising markets

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

Issues took a 180-degree flip on the finish of the last decade because the nation’s economic system stumbled. In Might 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 folks, Sri Lankans took to the road, forcing the president, Gotabaya Rajapaksa, to resign and flee the nation. 

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

Many specialists imagine that Sri Lanka’s story is a warning signal for rising markets. 

“Sri Lanka is going through its worst financial collapse in its fashionable historical past,” mentioned Sumudu W. Watugala, assistant professor of finance on the Kelley College of Enterprise at Indiana College. “This is because of long-standing structural weaknesses exacerbated by a sequence of idiosyncratic shocks. Sri Lanka’s disaster is usually a warning signal to different growing nations as a result of it is a traditional rising market disaster in some ways.”

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