April 18, 2022

According to foreign media such as the Wall Street Journal (WSJ) on the 17th (local time), Sri Lanka, which recently declared temporary default (default), will negotiate with the International Monetary Fund (IMF) for six days from the 19th to the 24th to secure a bailout loan. do it

Sri Lanka expects to receive a bailout of $4 billion (regarding 4.9 trillion won) through the negotiations. In addition to the IMF, Sri Lanka is negotiating with the World Bank (WB) and the Asian Development Bank (ADB) to raise $1 billion (1.2 trillion won) of funding. It also plans to ask for help from its allies, such as China and India.

Sri Lanka declared a temporary default on the 12th, stating that it would defer its external debt repayment of $51 billion (62.9 trillion won) until it receives a bailout from the International Monetary Fund (IMF). Sri Lanka’s foreign currency reserves stood at only US$1.93 billion (2.4 trillion won) as of the end of last month. Sri Lanka, which is highly dependent on the tourism industry, started accumulating external debt for the Belt and Road project with China, and the debt increased as it expanded its finances during the COVID-19 period.

Like Sri Lanka, Egypt, which has a large tourism industry, is struggling with increased debt following the COVID-19 outbreak. Egypt’s central bank has devalued its currency by 15%, which is a condition of the IMF’s support. Tunisia does not even provide basic food for its people. Tunisia received $400 million (regarding 490 billion won) of financial support from the World Bank (WB) last month, and also requested support from the IMF. Pakistani Khan, which is facing an economic crisis, has recently been ousted as Prime Minister Imran Khan and has been in a state of political instability, so IMF support has been suspended.

The economic crisis in emerging countries is attributed to the Ukraine war. It further stimulated inflation that has continued since Corona 19, revealing the true face of emerging countries’ economies, which are weak in basic physical strength. They have survived the crisis by increasing external debt and issuing excessive domestic currency following the pandemic. However, as central banks in developed countries such as the United States turn to tightening measures, they are facing a crisis due to a rapid outflow of foreign currency funds.

The WSJ said, “Emerging countries have faced a sharp rise in raw material prices due to the Ukraine war while debt has piled up in an environment of low interest rates and low prices for the past 10 years and government spending has increased due to COVID-19. Unlike developed countries, many emerging countries do not have the ability to solve problems on their own.”

According to the International Monetary Fund (IMF), the total debt of governments, businesses, and households around the world in 2020, when the COVID-19 outbreak occurred, increased by 28 percentage points to 256 percent of the world’s gross domestic product (GDP). It is the highest level since World War I and II.

41 of the 73 low-income countries that have had debt repayment deferral programs applied during the pandemic already have or are at high risk of default. 56% of countries are at risk, a share that has doubled from 27% in 2015.