The unfolding crisis in Sri Lanka is inflicting misery on millions. While political blunders take some of the blame, economic collapse is a symptom of wider malaise.
Almost a third of emerging market countries are in debt distress, says the IMF. The same proportion have pushed their interest rates to at least 10 per cent, as rising rates in advanced economies trigger capital outflows. Dollar-denominated emerging market sovereign bonds, as measured by the JPMorgan EMBI Global Diversified index, are on track for their worst run on record with total returns of minus 18.6 per cent this year.
Over-reliance on overseas money is a familiar risk. The sell-off during the “taper tantrum” of 2013 illustrated emerging economies’ vulnerability. Turkey, then one of the “fragile five” of badly-affected economies, is again in difficulty. Its annual inflation rate is almost 80 per cent after a succession of aggressive interest rate cuts. This year’s price rises are likely to be exceeded only by Venezuela, Sudan and Zimbabwe.