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

In the 2010s, Sri Lanka had one of the fastest growing economy in Asia.

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

As inflation continues to spiral out of control, with shortages of food, fuel and medicine for the country’s 22 million inhabitants, Sri Lankans have taken to the streets, forcing President Gotabaya Rajapaksa, resigned and fled the country.

Although Sri Lanka has a new president, Ranil Wickremesinghe, the protests continue. Inflation has increased by more than 50% – and can reach 70% – makes it harder for people to survive.

Many experts see the Sri Lankan story as 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 characteristic series of shocks. Sri Lanka’s crisis could be a warning sign for other developing countries because it’s a classic emerging-market crisis in many ways.”

So what does the Sri Lankan economic crisis signal about similar economies and emerging markets? Watch the video to learn more about the risks associated with emerging markets, how the Sri Lankan economy collapsed, and the way forward for the country.

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