“The Sri Lanka crisis is the starting point of dominoes in the global debt crisis”

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The British daily The Guardian reported on the 10th (local time) that the crisis in Sri Lanka, which began negotiations with the International Monetary Fund (IMF) after the prime minister resigned due to the worst economic hardship, is the beginning of a global crisis.

The International Monetary Fund’s (IMF) working team began negotiations this week in Colombo, Sri Lanka, on a bailout package, including financial aid and strong restructuring, according to reports.

The IMF and the World Bank (WB) are increasingly concerned that this is not a problem for individual countries, but a sign like a canary that warns of danger first in a coal mine, The Guardian reported.

Globally, low- and middle-income countries are experiencing the triple challenge of the COVID-19 pandemic, rising debt costs, and rising fuel and food prices following the war in Ukraine.

World Bank President David Malpass said at a general meeting held in April, “Energy, fertilizer and food prices are soaring, and there is a possibility of interest rate hikes. The impact of each of these is huge on developing countries.”

According to a recent report by the United Nations Conference on Trade and Development (UNCTAD), 107 countries are facing at least one of the three shocks: rising food prices, rising energy prices and fiscal tightening.

All three crises overlapped in 69 countries, including 25 in Africa, 25 in Asia, and 19 in Latin America.

Recently, the International Monetary Fund (IMF) has begun negotiations for assistance with Egypt and Tunisia, two major importers of wheat from Russia and Ukraine. It also entered into negotiations with Pakistan, which has restricted electricity supply due to rising energy import costs.

Among sub-Saharan African countries, Ghana, Kenya, South Africa and Ethiopia are also closely monitoring, while in Latin America, El Salvador and Peru are still at risk.

“The COVID-19 pandemic and war have resulted in a surge in borrowing, even though it has nothing to do with these countries,” said Richard Kozulite, director of globalization and development strategy at UNCTAD.

The World Bank warned that nearly 60% of low-income countries were in debt or were at risk even before the invasion of Ukraine, and that the cost of repaying debt is rising sharply, especially in countries with high foreign exchange debt.

Emerging market currencies are also depreciating as investors seek refuge in the dollar after the invasion of Ukraine. The US Federal Reserve’s rate hike also complicates matters.

Director Kozulite pointed out that the crisis in emerging markets is not a thing of the past, but pointed out that the international community lacked preparation for the upcoming debt problem.

The Guardian warns that Sri Lanka is only the first country to succumb to the economic crisis sparked by the invasion of Ukraine and will not be the last.

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