Thinkpad: Turmoil

Happy weekend.

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Here in India, we mostly stay occupied with what’s happening locally. There is always so much happening! There is reason, though, to look around the neighbourhood this week.

From Sri Lanka to Nepal and Pakistan, a number of neighbouring nations are in economic turmoil. So are a number of low-income nations across the world.

Sri Lanka, this week, said it would stop making payments on its external debt, to save foreign exchange to pay for food and fuel imports. The country has seen its foreign exchange reserves slip to just $1.94 billion.

While the Covid-19 pandemic precipitated the crisis, the country’s economic fundamentals were shaky even before it. Tax cuts had led to a dwindling of revenue and external debt, for a nation with GDP of $81 billion, had risen to over $50 billion. You can catch up on what led to the crisis here.

While China was the first go-to point for Sri Lanka, as the crisis precipitated, the nation has sought help from India and is now knocking on the doors of the IMF. India, on its part, has extended an existing $400 million swap line via the Reserve Bank of India, State Bank of India and Exim Bank, which have given loans to the nation for emergency needs.

Eventually, the extent of help India will be willing to provide will presumably come down to geopolitics and balancing China’s influence over the island nation.

Continue Reading. Read more on Business News by BloombergQuint.

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