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

During the 2010s, Sri Lanka had one of the fastest growing economies in asia

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

As inflation continued to run rampant, with massive shortages of food, fuel and medicine for the country’s 22 million people, Sri Lankans took to the streets, forcing the president, Gotabaya Rajapaksa., resign and flee the country.

Although Sri Lanka has a new president, Ranil Wickremesinghe, protests continue. Inflation has risen beyond 50%, and could reach 70%, making it difficult for people to survive.

Many experts believe that Sri Lanka’s story is a warning sign for emerging markets.

“Sri Lanka is facing the worst economic collapse in its modern history,” said Sumudu W. Watugala, assistant professor of finance at Indiana University’s Kelley School of Business. “This is due to long-standing structural weaknesses exacerbated by a series of idiosyncratic shocks. Sri Lanka’s crisis may be a warning sign for other developing nations because it is a classic emerging market crisis in many ways.”

So what does Sri Lanka’s economic crisis indicate about similar economies and emerging markets? Watch the video to learn more about emerging market risks, how Sri Lanka’s economy collapsed and the country’s way forward.


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About the Author: Chaz Cutler

My name is Chasity. I love to follow the stock market and financial news!