Sri Lanka’s economy is among the worst affected by the current COVID 19 crisis

Sri Lanka’s economy is among the worst affected by the current COVID 19 crisis

Sri Lanka’s economy is among the worst affected by the current COVID 19 crisis, according to a ranking published by the Economist this week. Sri Lanka listed at 61 in a the 66 emerging economies according to a report published by "The Economist".

The ranking examines the vulnerability of selected economies across four potential sources of peril—public debt as percentage of GDP, foreign debt (both public and private), cost of borrowing and reserve cover.  

The Economist calculated the 66 emerging economies’ likely foreign payments this year (their current-account deficit plus their foreign-debt payments) and compared this with their stock of foreign exchange reserves. A country’s rank on each of these indicators is then averaged to determine its overall standing.

Botswana tops the list of countries with the strength of its indicators while Venezuela fared as most vulnerable. 

According to the magazine the strongest countries, such as South Korea and Taiwan, are overqualified for the role of emerging markets.

Sri Lanka has been listed at  61 according to The Economist’s report on the financial strength of the 66 emerging economies in the wake of the Covid-19 fallout and only Angola, Lebonan, Bahrain, Zambia and venezuela ranked below Sri Lanka.

In South Asia, Bangladesh, one of the better-managed countries in the region did well, coming in at 9, above China and next to Saudi Arabia. Bangladesh has fared better than three of its South Asian neighbours — India ranked 18th, Pakistan 43rd and Sri Lanka 61st.    

It says Covid-19 hurts emerging economies in at least three ways: by locking down their populations, damaging their export earnings and deterring foreign capital. 

Even if the pandemic fades in the second half of the year, GDP in developing countries, measured at purchasing-power parity, will be 6.6% smaller in 2020 than the IMF had forecast in October, states the report. 

“The damage to exports will be acute. Thanks to low oil prices, Gulf oil exporters will suffer a current-account deficit of over 3% of GDP this year, the IMF reckons, compared with a 5.6% surplus last year. When exports fall short of imports, countries typically bridge the gap by borrowing from abroad. But the reversal of capital inflows has been matched by higher borrowing costs.” 

To weather the crisis, the report states, emerging economies may need at least $2.5trn, the fund reckons, from foreign sources or their own reserves. One way to ensure countries have more hard currency is to stop taking it from them. 

The G20 group of governments has said it will refrain from collecting payments this year on its loans to the poorest 77 countries. However  the borrowers will have to make up the difference later

The Economist said that the last thirty countries in the ranking owe a total of US $17 Trillion.

Eighteen, of that thirty including Sri Lanka have had their ratings cut by Fitch.

The countries in the bottom thirty including Sri Lanka are “in distress or flirting with it,” the magazine said