In the third year of the new crown epidemic, combined with the conflict between Russia and Ukraine and the Federal Reserve raising interest rates, the financial situation of many countries has worsened. The most typical is Sri Lanka. The country's economic crisis has exposed social problems and various emergencies have occurred frequently.

The Consular Department of the Chinese Ministry of Foreign Affairs and the Chinese Embassy in Sri Lanka issued a warning a few days ago, reminding Chinese citizens in Sri Lanka to pay close attention to the local security situation, avoid participating in, watching gatherings, protests and other activities, abide by local laws and regulations, increase vigilance, strengthen prevention, and pay attention to safety , to ensure personal and property safety.

Recently, the managing director of the International Monetary Fund (IMF) Georgieva said that Sri Lanka's bankruptcy may not be an isolated case. She said the country's situation is a warning that countries with high debt levels and limited policy space will face more pressure in the future.

Bangladesh's foreign reserves fall below $40 billion

Bangladesh's foreign reserves, also a South Asian country, are under pressure. Bangladesh's foreign exchange reserves fell below $40 billion, the lowest in two years, after paying import bills to the Asian Clearing Union (ACU), the country's central bank said. The central bank of Bangladesh is also constantly selling dollars to stabilize currency markets, which could also have an impact on foreign reserves.

It is reported that Bangladesh’s foreign exchange reserves will soar to $48 billion in August 2021. But Bangladesh's foreign exchange reserves fell to $41.86 billion in late June 2022 after an unusual increase in imports.

Subsequently, Bangladesh's foreign exchange reserves fell to $39.77 billion due to the payment of almost $2 billion to ACU at the beginning of the month. Bangladesh's foreign exchange reserves have been strained over the past few months amid a surge in import bills and a decline in inward remittances.

A record inflow of more than $900 million in remittances during the seven-day Hari Raya holiday was still not enough to offset the decline in Bangladesh's foreign exchange reserves as the central bank kept pumping dollars into the market, a bank official said.

In the just-concluded fiscal year 2021-2022, the Central Bank of Bangladesh sold more than $7.62 billion to prevent the taka from depreciating against the dollar. In the first 12 days of the 2022-2023 fiscal year, the Central Bank of Bangladesh sold $470 million.

Maldives and other South Asian countries face severe economic situation

In addition, other South Asian countries face similar conundrums. It is reported that tourism is an important industry in the Maldives. The contribution rate of tourism revenue to its GDP has remained at 25% to 30% for many years, and it is the main source of foreign exchange income for the Maldives.

After the epidemic, the level of public debt in the Maldives has continued to rise, and it has already exceeded the total GDP of a year. A country with a single economy like the Maldives is more vulnerable to the current spike in fuel prices, the World Bank said. American investment bank JPMorgan Chase even predicted that the Maldives may fall into debt default by the end of 2023.

Pakistan also has little foreign exchange left. Compared with last August, the foreign exchange reserves have been halved, and the import spending can only be maintained for about one to two months. At present, Pakistan's foreign exchange reserves can only cover the cost of importing materials for less than two months, so funds are urgently needed. And the country has one of the fastest inflation rates in Asia.

Since May, the Pakistani government has begun to restrict the import of non-essential luxury goods, including cars and mobile phones. In June, Pakistani government officials even called on people to drink less tea a day to reduce tea imports.

Recently, Nepal, which is also a South Asian country, announced to retain the import ban on 10 commodities due to the shortage of foreign reserves. Goods include cigarettes and tobacco-related products, diamonds, mobile phones, colour TVs with screens larger than 32 inches, cars except ambulances and hearses, motorcycles over 250cc, toys of all categories, alcoholic beverages and playing cards. The ban is now extended until August 30.

Myanmar ordered to stop foreign debt repayments

In addition to the above-mentioned South Asian countries, Myanmar has also fallen into a foreign exchange crisis, and the government has taken heavy measures to take control measures.

Win Thaw, deputy governor of the Central Bank of Myanmar, sent a letter to the banks that apply for foreign exchange trading licenses, asking them to notify residents to suspend the repayment of interest and principal of various foreign currency loans obtained in cash or in kind. This is the latest move by the Myanmar government to tighten controls in response to the bottoming out of foreign exchange reserves.

The new rule requires licensed banks to notify their business customers with foreign debts to negotiate with foreign lenders to adjust loan repayment schedules.

Myanmar companies have at least US$1.2 billion (S$1.68 billion) in US dollar loans outstanding, according to data compiled by Bloomberg. The borrowers include Myanmar telecommunications company Ooredoo Myanmar Ltd, real estate company City Square Commercial Co, and telecom tower companies Apollo Towers Myanmar Ltd and Irrawaddy Green Towers Ltd.

In order to promote Myanmar's foreign exchange reserves, the Central Bank of Myanmar recently announced that foreign institutions are allowed to set up wholly foreign-owned non-bank financial institutions or joint ventures. The government earlier revoked an exemption from mandatory foreign exchange rules for registered companies with foreign ownership of at least 10 percent.

Currently, the IMF estimates that 38 developing countries face the threat of debt problems. Georgieva warned that emerging markets and developing countries have experienced sustained capital outflows for four consecutive months. The pace at which these countries have caught up with advanced economies over the past 30 years could be reversed and there is a risk of falling further behind.