In the making: A South Asian economic crisis?
Sri Lanka declared a state of emergency on Friday
Nepal’s forex reserves have been on the decline since July, 2021
Pakistan’s economic troubles led to the ouster of Imran Khan
Sri Lanka declared a state of emergency on Friday night as protests over the island nation’s burgeoning economic crisis threatened to destabilise the political leadership. In Pakistan, the political leadership has already been destabilised with Imran Khan being ousted from power. The primary accusation against him is of economic mismanagement. Nepal isn’t in good shape either and the less said about Afghanistan and Myanmar the better. India is reeling under high inflation and China, the world’s second largest economy, is facing financial trouble due to its COVID curbs.
All in all, it’s not a good time to be in South Asia.
The current crises are not of the pandemic’s making. All that the pandemic did was to exacerbate the problems requiring them to be addressed immediately. While the scale and impact of the current crisis is reminding many of the South East Asian economic crisis 25 years ago, the clear distinction between the two is that South East Asia was plunged into an economic crisis but South Asia’s crisis has been long in the making.
The island nation is facing a balance of payment crisis compounded by a severe foreign exchange shortage. Foreign exchange reserves are extremely low and the government is finding it difficult to import food, fuel and essential medicines. Thousands of people are out on the streets calling for the Rajapaksas, the family at the helm of Sri Lanka’s political affairs, to go.
As “Go Gota Go” slogans (Gota is a reference to Sri Lankan President Gotabaya Rajapaksa) fill the air, the government, at a loss about how to solve the economic crisis, is cracking down on protestors. Sri Lankan authorities are said to have used force, including the use of tear gas and arbitrary detentions, to quell peaceful assemblies, according to an Amnesty International report titled, “From Bad to Worse: Rights Under Attack During Sri Lanka’s Economic Crisis.”
Imran Khan, who came to power in Pakistan with the promise to rid the country of the corrupt elite in control of resources, has the active distinction of being that Pakistani leader under whom the nation’s GDP plunged below Bangladesh’s. In the four years Imran Khan was in power, Pakistan’s GDP fell from $315 billion to $292 million, according to a report in The Hindu Business Line.
Now, with Khan having been ousted, the fate of Pakistan lies with Shahbaz Sharif. Sharif, brother of former Pakistan PM Nawaz Sharif, has spearheaded the Sharif “Steel Empire.” But it remains to be seen how he manages Pakistan’s economy.
The central discussion in South Asian geopolitics over the last week isn’t how to lift Nepal out of its economic crisis but is Nepal really in an economic crisis. A tourism-dependent country, Nepal’s economy did take a deadly blow on account of the COVID-19 pandemic. But is Nepal going the Sri Lanka way? Probably not right now.
Nepal’s foreign exchange reserves have been dwindling since July 2021 since the fall of the KP Sharma Oli government. Forex reserves dropped from $11.75 billion in mid-July 2021 to $9.75 billion in February 2022. The amount is only enough to pay import bills for less than seven months the threshold set as a benchmark by the country’s central bank.
India, by all definitions, is not in the middle of an economic crisis. While the Russia-Ukraine war has put a stress on global supply chains that have impacted India, leading to higher crude prices that, among other factors, have led to inflation, India’s political system has remained steadfast and stable.
However, the disturbances in the rest of South Asia are bound to have an impact on one of world’s fastest-growing economies. India is sending help to its neighbouring nations, including Sri Lanka, Afghanistan and Nepal. But domestically, the country is seeing high unemployment and a rise in communal violence, which while not causing active dissonance in society threatens to put India in the middle-income trap.
China’s troubles, are of course, different from the rest of the countries. A superpower in all its senses, the Chinese economy is quite literally too big to fail. But it’s not as if Beijing is without its stresses. President Xi Jinping’s zero-COVID policy has but China’s businesses under considerable strain.
Xi has refused to compromise on his strongman persona ahead of scoring the third term as president, but businesses in China are reeling under heightened government regulation in addition to the COVID curbs. Further, the fate of Chinese interests in Sri Lanka and Nepal also has a bearing on Beijing’s ability to maintain and increase its sphere of influence.