Beware of risk! There are More Than 70 Countries that May Follow in Sri Lanka's Footsteps! 

The economy is collapsing, and you need to be cautious about shipping and receiving foreign exchange.

After Sri Lanka's debt default, currency devaluation, soaring inflation, national bankruptcy, the resignation of both the president and the prime minister, and the public protests that burned down the presidential palace, it is not difficult to see how important a country's economic resilience is.

The current global economic situation can be described as wave after wave. Many countries have not yet recovered from the impact of the epidemic. The conflict between Russia and Ukraine suddenly started. While the negative impact continued to spread, the Federal Reserve announced aggressive interest rate hikes. This chain of events makes Sri Lanka not the only economy in serious trouble.

The United Nations has said a deepening food, fuel, and financial crisis could destabilize poorer countries, leading more than 70 countries to default on their debts, following the example of Sri Lanka.

The debt problems of many Latin American countries are serious.

Peruvian dollar bonds have become the world’s second-worst performing bonds after Sri Lanka, having fallen more than 10 percent this year.

Due to high domestic inflation, the Central Bank of Peru announced a few days ago that it would raise the key interest rate by 0.5 percentage points to 6%, and the cost of borrowing has already increased by 575 basis points. The country's inflation rate rose at the fastest pace in 25 years, raising social tensions.

Meanwhile, the bank lowered its 2022 growth forecast for Peru to 3.1 percent from 3.4 percent previously, while maintaining its estimate of 3.2 percent growth next year. In addition to the impact of the Russian-Ukrainian conflict, the ongoing mining conflict is also driving the downward revision in growth forecasts, according to Julio Velarde, governor of Peru’s central bank.

The economic downturn affects the people the most. At the end of last month, protests broke out in Lima, the capital of Peru. People were deeply dissatisfied with the current high inflation and the soaring cost of living, accusing President Castillo of not fulfilling the political promises made during the election. Protesters are demanding higher wages and special care for retirees.

In addition to Peru, Colombia, Argentina, Ecuador, Uruguay, and many other Latin American countries have foreign debt ratios that have exceeded 50%, far exceeding the international safety line of 20%. Belize and Grenada are listed by the United Nations Development Programme and the World Bank as countries with severe debt problems and may even be unable to repay their external debts.

Recently, people in Argentina demonstrated in the capital Buenos Aires to protest against domestic inflation. The country is facing an inflation crisis, coupled with the devaluation of the national currency and the soaring cost of imported natural gas. Its foreign exchange reserves have officially bottomed out.

It is reported that Argentina has lost 99% of its value against the dollar in the past decade by printing useless pesos. During the same period, Argentina's money supply, including all currencies in circulation, surged by 2,328.09% over a decade.

Turkey's high debt

Deteriorating government finances and a widening trade deficit have exacerbated Turkey's high debt. Data shows that Turkey's foreign debt is about 54% of GDP. At the same time, local inflation is over 60% and unemployment remains high. The Turkish lira fell to record lows against the dollar and the euro late last year, and the central bank dumped its foreign reserves to fight a currency crisis.

Tax cuts and fuel subsidies to soften the blow from high inflation have weakened government finances. Families can barely manage to buy food and other supplies.

According to the analysis of Li Meicen's team, the current exchange rate depreciation in emerging markets is about 6.24% on average. Among them, the Turkish exchange rate depreciation rate was 23.31%, and the total foreign debt to foreign exchange reserves was as high as 732%, which is the highest debt risk among emerging market countries.

According to a report released by the Turkish Statistical Institute, the current inflation rate in the country is 78.6%. This figure is Turkey's highest level in nearly 20 years. Inflation of other necessities such as food has risen sharply, with food prices nearly doubling in a year to 93.9 percent. The highest inflation rate was in the transportation sector, which reached 123.4% in June.

At the same time, affected by inflation, the international credit rating agency Fitch downgraded Turkey's credit rating from B+ to B and confirmed its economic outlook as "negative".

Many other countries fell into economic crisis one after another.

Laos, whose debt levels have soared, is in talks with creditor nations over how to repay billions of dollars worth of loans. Meanwhile, the World Bank said the country's foreign exchange reserves were equivalent to less than two months' worth of imports.

In one country, Zimbabwe, whose inflation rate rose to 191.6% in June, the central bank decided to raise the policy benchmark interest rate from 80% to 200% by 12,000 basis points. The bank's cumulative rate hike this year has reached 14,000 basis points, the highest in the world. And announced the official reintroduction of the U.S. dollar as legal tender.

The currency of Egypt, the most populous country in the Middle East, has plummeted and inflation is high. The World Bank has warned that a 30% rise in food prices could lead to a 12% rise in poverty rates, which hover around a third in Egypt, home to 103 million people.

In addition, factors such as global risk aversion have led to the large-scale withdrawal of foreign investment in Egypt. Since the Russian-Ukrainian war, the total amount of foreign capital flowing out of the Egyptian market has exceeded 3 billion US dollars, and the total foreign debt has exceeded 100 billion US dollars.

Lebanon is also "unscathed". As early as April this year, the Deputy Prime Minister of Lebanon announced that the country had entered a state of bankruptcy. The World Bank warned that the current economic crisis in Lebanon is likely to be one of the three worst economic crises in the world since the mid-19th century.

And it is expected that as the multiple political and economic situations in Lebanon continue to deteriorate, business risks will further increase. Especially when Lebanon's exchange rate plummets, the local currency depreciates, and the economy faces high risks, importers are likely to use this loophole to harm the interests of suppliers due to cost pressures.

Finally, according to the comprehensive data from the International Monetary Fund and the World Bank, Pakistan, Malaysia, Indonesia, Mexico, India, Vietnam, Nepal, Myanmar, Mongolia, Thailand, and other countries will have high debts and do not have strong financial resources. Supported by foreign exchange reserves, it fell into the predicament of a new round of currency tightening cycle of the US dollar.