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

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In the course of the 2010s, Sri Lanka had one in every of the fastest-growing economies in Asia. 

Things took a 180-degree turn at the tip of the last decade because the country’s economy stumbled. In May 2022, the federal government defaulted on its debt for the primary time in history. 

As inflation continued to spiral uncontrolled, with a large shortage of food, fuel and medicine for the country’s 22 million people, Sri Lankans took to the road, forcing the president, Gotabaya Rajapaksato resign and flee the country. 

Although Sri Lanka has a recent president, Ranil Wickremesinghe, protests proceed. Inflation has risen past 50% — and could hit 70% — making it harder for people to survive. 

Many experts imagine that Sri Lanka’s story is a warning sign for emerging markets. 

“Sri Lanka is facing its worst economic collapse in its modern history,” said Sumudu W. Watugala, assistant professor of finance on the Kelley School of Business at Indiana University. “That is attributable to long-standing structural weaknesses exacerbated by a series of idiosyncratic shocks. Sri Lanka’s crisis generally is a warning sign to other developing nations since it’s a classic emerging market crisis in some ways.”

So what does Sri Lanka’s economic crisis signal about similar economies and emerging markets? Watch the video to find out about more risks involved in emerging markets, how Sri Lanka’s economy collapsed and the country’s path forward. 

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