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

In the 2010s, Sri Lanka was the fastest growing economy in Asia.

Things turned 180 degrees at the end of the decade as the country’s economy stumbled. In May 2022, the government defaulted for the first time in its history.

As inflation continued to spiral out of control, leaving its 22 million people severely short of food, fuel and medicine, Sri Lankans took to the streets and forced President Gotabaya Rajapaksa to leave., He resigned and fled the country.

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

Many experts consider the Sri Lankan story to be a warning sign for emerging markets.

“Sri Lanka is facing the worst economic collapse in modern history,” said Sumudu W. Watugala, an assistant professor at Indiana University’s Kerry School of Business. “This is due to long-standing structural weaknesses exacerbated by a series of idiosyncratic shocks. Sri Lanka’s crisis is in many ways a classic emerging market crisis, so a warning to other developing countries. It could be a signature.”

So what does Sri Lanka’s economic crisis tell us about similar economies and emerging markets? Learn about your next career path.

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