Sri Lanka Is Calm Again. That Doesn’t Mean Things Are Any Better.
“How long since we had eggs?” Mr. Dissanayake asked.
“Two months,” she said.
Whether Sri Lanka, a country of 22 million, manages to turn things around or instead plunges deeper into economic distress is being closely watched for what officials and diplomats described as a potential domino effect. Dozens of other smaller nations are similarly struggling with unsustainable debt, a hole that has become even harder to climb out of with the economic blow of the pandemic and rising prices related to Russian’s war on Ukraine.
What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.
Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.
How does inflation affect the poor? Inflation can be especially hard to shoulder for poor households because they spend a bigger chunk of their budgets on necessities like food, housing and gas.
Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.
Many of these countries have something in common: They owe a large share of their debt to China.
Sri Lanka defaulted on its debt last spring, and it is now in discussions with the International Monetary Fund over a bailout package that could inject $2.9 billion in much-needed cash into its economy and, more important, restore some confidence with creditors.
As part of the conditions for finalizing the I.M.F. package, Sri Lanka is required to get assurances from its bilateral creditors like China on restructuring the terms of its outstanding debt. A majority of Sri Lanka’s roughly $50 billion in debt comes from multilateral lenders and sovereign bonds. China is the largest bilateral donor, with about $7 billion in outstanding debt, according to the Sri Lankan government.
Sri Lanka had hoped to complete the I.M.F. deal by December, but the date has been repeatedly pushed back as the Chinese response has been slowed by last fall’s Communist Party congress and the Covid outbreak that has since swept the country, officials said.
India, another main donor, has given its assurance on debt restructuring. Last week, China sent an initial response to the I.M.F. that Sri Lankan officials said was promising, but it remained unclear whether the offer would satisfy the monetary fund.
Beijing has been moving deliberately, analysts said, in part because it is contending with a mountain of nonperforming loans to other nations, and any concessions it makes to Sri Lanka could set a precedent.
Article source: https://www.nytimes.com/2023/01/31/business/sri-lanka-economy.html