How Sri Lanka’s economic collapse raises alarm bells for other emerging markets

During 2010, Sri Lanka had a Fastest growing economy in Asia.

Things took a 180-degree turn at the end of the decade as the country’s economy suffered. In May 2022, the government defaulted on its debt for the first time in history.

With inflation spiraling out of control and severe shortages of food, fuel and medicine for the country’s 22 million people, Sri Lankans took to the streets and forced out President Gotabaya Rajapaksa., resigning and fleeing the country.

Despite Sri Lanka’s new president, Ranil Wickremesinghe, protests continue. Inflation has gone above 50% – and can reach up to 70% – Making life difficult for people.

Many experts believe that the Sri Lankan story is a warning sign for emerging markets.

“Sri Lanka is facing the worst financial crisis in its modern history,” said Sumudu W., assistant professor of finance at Indiana University’s Kelly School of Business. said to Watuga. “This has been exacerbated by a series of long-standing structural weaknesses, which have led to multiple shocks. Sri Lanka’s crisis may be a warning signal to other developing nations because it is in many ways a classic emerging market crisis.”

So what does Sri Lanka’s financial crisis signal about similar economies and emerging markets? Watch the video to learn more about the risks involved in emerging markets, how the Sri Lankan economy collapsed and how the country has fared.

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