#NewsBytesExplainer: Like Sri Lanka, these countries too facing economic setback
An economic crisis is brewing in many nations, including the neighboring countries of India. As per reports, the factors are many, but the one strand common in all countries is the economy and chaos that followed the COVID-19 pandemic. Here's a glance at what's going on in some of these countries in terms of their economics.
Why does this story matter?
Apart from the COVID-19 pandemic, the economic crisis was precipitated by the Russia-Ukraine conflict and rising US interest rates, which escalated global fuel and other import prices. Countries with significant debt obligations, such as Sri Lanka, are inevitably the worst hit. To soothe unrest, certain European, Asian, and African nations have provided refunds and energy subsidies. Experts, however, feel it will exacerbate the disarray.
Facing economic downturn, dangerously low reserves
Following the pandemic, Argentina is experiencing an economic slump. The Argentine peso is currently trading at over a 50% discount in the black market, while reserves are dangerously low. The bonds are trading at about 20 cents on the US dollar—far below the 2020 target. All eyes are now on the administration to see if it can deal with the International Monetary Fund (IMF).
War-torn country may be forced to freeze debt
Following Russia's incursion, Ukraine faced a major economic setback. Now, the country has to restructure its $20 billion in debt, as per Reuters. Although it still has some months to pay the bond payments of $1.2 billion, investors are apprehensive that government may announce a debt freeze. Notably, the state-run oil company Naftogaz already announced a two-year debt freeze this week.
Economically endangered African nations
Tunisia tops the list of endangered countries in Africa that are going to the IMF. As per Reuters, Tunisian bond spreads have risen to over 2,800 basis points. Similarly, Ghana is faced with a huge debt-to-GDP ratio of 85%. Its currency, the Ghanaian cedi, has lost nearly a quarter of its value this year while the inflation is also getting close to 30%.
Worst outflow of international currency leads Egypt to huge debt
According to JPMorgan, Egypt's debt-to-GDP ratio is about 95%. The global financial services firm said the country experienced the worst outflows of international currency this year—approximately $11B. It has nearly $100 billion in debt to be paid in hard cash over the next five years. Meanwhile, the government sought the IMF's assistance in March even as bond spreads are now above 1,200 basis points.
Breakthrough deal may not bring Pakistan out of economy downturn
Although Pakistan reached an important IMF agreement this week, the success would not assist the government deal with high energy import rates. Reuters said foreign currency reserves had dwindled in the country to $9.8 billion, just enough to cover five weeks of imports. The Pakistani rupee has also reached new lows. Now, all eyes are on the new government to take some serious action.
Which other countries are on brink of bankruptcy?
Ethiopia, El Salvador, Belarus, Kenya, Ecuador, and Nigeria are among the other countries on the verge of bankruptcy. The main issue with these countries is a misallocation of funds and an inability to pay debts on time. Last month, Western sanctions forced Russia into default, and Belarus is now facing the same harsh fate, too, for siding with Moscow in the Ukraine fight.
