By ELAINE KURTENBACH, AP Business Writer
BANGKOK (AP) — Sri Lanka is desperate for help to overcome the worst crisis in its recent history. Their schools are closed for lack of fuel to get children and teachers to classrooms. His effort to organize an International Monetary Fund bailout has been hampered by the severity of his financial crisis, says his prime minister.
But it is not the only economy in deep trouble as prices for food, fuel and other basic goods have soared with the war in Ukraine. Alarm bells are ringing for many economies around the world, from Laos and Pakistan to Venezuela and Guinea.
Some 1.6 billion people in 94 countries face at least one dimension of the crisis in the food, energy and financial systems, and about 1.2 billion of them live in “perfect storm” countries, severely vulnerable to a cost shock. of life and other longer-term stresses, according to a report last month by the United Nations Secretary-General’s Global Crisis Response Group.
The exact causes of their problems vary, but they all share rising risks from rising food and fuel costs, fueled soaring by Russia’s war with Ukraine, which hit just as disruptions to tourism and other business activities due to the coronavirus pandemic were fading. As a result, the World Bank estimates that per capita incomes in developing economies will be 5% below pre-pandemic levels this year.
Economic tensions are fueling protests in many countries, as higher-interest short-term loans to help finance pandemic aid packages meanwhile have racked up more debt in countries already struggling to meet payment obligations. More than half of the world’s poorest countries are burdened by debt or at high risk of contracting it, according to the UN
Some of the worst crises occur in countries already devastated by corruption, civil war, coups, or other calamities. They manage, but with an undue burden of suffering.
Here’s a look at some of the economies that are in dire straits or most at risk.
Afghanistan has been recovering from a severe economic crisis since the Taliban took control when the United States and its NATO allies withdrew their forces last year. Foreign aid, long a mainstay, ground to a halt virtually overnight as governments piled on sanctions, halted bank transfers and halted trade, refusing to recognize the Taliban government. The Biden administration froze $7 billion in Afghanistan’s foreign exchange reserves in the United States. About half of the country’s 39 million people face life-threatening levels of food insecurity and most civil servants, including doctors, nurses and teachers, have not been paid for months. A recent earthquake killed more than 1,000 people, adding to those miseries.
Around four in 10 Argentines are poor and their central bank is running dangerously low on foreign exchange reserves as its currency weakens. Inflation is expected to exceed 70% this year. Millions of Argentines survive largely on soup kitchens and state welfare programs, many of which are channeled through politically powerful social movements linked to the ruling party. A recent deal with the IMF to restructure $44 billion in debt faces questions over concessions that critics say will hamper recovery.
Egypt’s inflation rate rose to nearly 15% in April, causing hardship especially for almost a third of its 103 million people who live in poverty. They were already suffering from an ambitious reform program that includes painful austerity measures such as floating the national currency and reducing subsidies for fuel, water and electricity. The central bank raised interest rates to curb inflation and devalued the currency, adding to difficulties paying off Egypt’s sizeable foreign debt. Egypt’s net foreign reserves have fallen. Its neighbors Saudi Arabia, Qatar and the United Arab Emirates have pledged $22 billion in deposits and direct investments as assistance.
Tiny, landlocked Laos was one of the fastest growing economies until the pandemic hit. Its debt levels have increased and, like Sri Lanka, it is in talks with creditors over how to pay back billions of dollars in loans. That is an urgent issue given the weak finances of the country’s government. Its foreign exchange reserves are equivalent to less than two months of imports, says the World Bank. A 30% depreciation in Laos’ currency, the kip, has made those problems worse. Rising prices and job losses due to the pandemic threaten to worsen poverty.
Lebanon shares with Sri Lanka a toxic combination of collapsing currency, shortages, punitive levels of inflation and rising hunger, meandering lines for gasoline, and a decimated middle class. It also endured a long civil war, its recovery hampered by government dysfunction and terrorist attacks.
The proposed taxes at the end of 2019 ignited long-standing anger against the ruling class and months of protests. The currency began to sink and Lebanon missed out on paying around $90 billion worth at the time, or 170% of GDP, one of the highest in the world. In June 2021, when the currency lost almost 90% of its value, the World Bank said the crisis was classified as one of the worst the world has seen in more than 150 years.
The pandemic and political instability have hit Myanmar’s economy, especially after the military seized power in February 2021 from the elected government of Aung San Suu Kyi. That brought Western sanctions targeting military-controlled commercial properties, which dominate the economy. The economy shrank 18% last year and is expected to barely grow in 2022. More than 700,000 people have fled or been forced from their homes by armed conflict and political violence. The situation is so uncertain that a recent World Bank global economic update excluded forecasts for Myanmar for 2022-2024.
Like Sri Lanka, Pakistan has been in urgent talks with the IMF, hoping to revive a $6 billion rescue package that was put on hold after Prime Minister Imran Khan’s government was ousted in April. Rising crude oil prices pushed up fuel prices, which in turn pushed up other costs, driving inflation to more than 21%. A government minister’s call to cut tea consumption to reduce the $600 million bill for imported tea has angered many Pakistanis. Pakistan’s currency, the rupee, has fallen 30% against the US dollar in the past year. To win IMF support, Prime Minister Shahbaz Sharif raised fuel prices, abolished fuel subsidies and imposed a new 10% “super tax” on major industries to help repair the country’s shattered finances. By the end of March, Pakistan’s foreign exchange reserves had fallen to $13.5 billion, equivalent to just two months of imports. “Macroeconomic risks are strongly skewed to the downside,” the World Bank warned in its latest assessment.
Worsening government finances and growing trade and capital account deficits have compounded Turkey’s problems with high and growing debt, inflation (above 60%), and high unemployment. The central bank resorted to using foreign reserves to fend off a currency crisis, after the beleaguered lira fell to record lows against the US dollar in late 2021. Tax cuts and fuel subsidies to cushion the blow of inflation have weakened public finances. Families struggle to buy food and other goods, while Turkey’s external debt is around 54% of its GDP, an unsustainable level given the high level of public debt.
Inflation in Zimbabwe has risen to more than 130%, raising fears that the country could return to the 500 billion hyperinflation of 2008 and creating problems for its already fragile economy. Zimbabwe struggles to generate an adequate inflow of needed dollars for its largely dollarized local economy, which has been battered by years of deindustrialization, corruption, low investment, low exports and high debt. Inflation has left Zimbabweans wary of the currency, adding to the demand for US dollars. And many skip meals as they struggle to make ends meet.
Associated Press writers Munir Ahmed in Islamabad, Pakistan, and Krishan Francis in Colombo, Sri Lanka, contributed to this report.
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