The crisis in Sri Lanka – a taste of what lies ahead

 

Sri Lanka Here you have inflation's real losers 

 

Of: 

 

Andreas Cervenka 

 

Published: Today 12.22 

 

Updated: Today 12.47 

 

This is a commenting text. Analysis and positions are the writer's. 

 

COLUMNISTS 

 

In stressful situations, it is easy to suffer from tunnel vision and only focus on what is happening right in front of your nose. Welcome to Sweden. 

 

"Isn't it crazy how much a macchiato costs these days?". 

 

"Two percent interest on a mortgage, that's disgusting!". 

 

Elsewhere: slightly more difficult situation. In Sri Lanka, in case you missed it, there is a period of total chaos. This summer, the presidential palace was stormed by residents frustrated by an economy run at the bottom of the political elite. The igniting spark was out-of-control inflation, 55 percent in June. With sky-high interest rates, Sri Lanka can no longer pay off its debts and is effectively bankrupt. There is a shortage of fuel and a growing part of the population cannot afford to buy food. 

 

The crisis in Sri Lanka is likely just a foretaste of what lies ahead. 

 

The combination of pandemic-weakened economies and rising prices has developed into a nightmare for the Third World. 

 

In the years following the 2008 financial crisis, central banks in the West pushed interest rates down to zero, making it cheaper to borrow even for less wealthy countries. Debt grew at record speed. 

 

Now the foreign lenders have put their legs on their backs and interest rates have gone through the roof. According to the International Monetary Fund, the IMF, at least 53 developing countries have unsustainably high debt mountains. 

 

The crisis has also lowered the value of many poor countries' currencies. 

 

It makes importing oil and food even more expensive, as well as paying on foreign loans. 

 

Even before the war in Ukraine, 770 million people went hungry, according to the UN, the highest figure since 2006. 

 

Now there are even more of them. 

 

In East Africa, which has also been hit by extreme drought, 50 million people are threatened by an acute lack of food. 

 

Jan Egeland, secretary general of the Norwegian Refugee Council, has called it the "mega-crisis no one is talking about". 

 

All this creates a bad atmosphere on a completely different scale than the rage of the Swedish middle class over egg and diesel prices. 

 

Analysis firm Verix, which measures social unrest, predicts in an analysis that 75 countries face growing popular protests by the end of 2022, driven by insecure access to food and failing economies. 

 

Back to Sweden. 

 

On Thursday, Finance Minister Mikael Damberg presented his autumn forecast, which pointed to a coming recession. We are not completely scrapped, public sector debt is predicted to fall from 36 percent of GDP last year to a record low 25 percent in 2025. The average in the EU is 90 percent. For Sweden, the difference corresponds to around 3,500 billion. 

 

 

Minister of Finance Mikael Damberg. Photo: MARKO SÄÄVÄLÄ/TT 

 

This does not mean that it is time to splash this fund anyway, in the event of a deep crisis, the buffer will be needed. 

 

Before the election, several parties have nevertheless chosen to sprinkle money to attract voters. In addition to electricity subsidies, the moderates promise large tax cuts. But how does it fit in with the talk about responsible fiscal policy? 

 

Well, the party's economists have rummaged through all the drawers of the state budget and found a hidden tax that can pay almost the entire party. 

 

The party wants to save SEK 21 billion on Sweden's aid, a reduction of more than a third compared to the level in 2021. 

 

“Reduce aid. We have big problems at home," the moderates' economic policy spokesperson Elisabeth Svantesson thundered in campaign ads. 

 

"Big problems?" An ordinary man on the streets of Sri Lanka would probably giggle hysterically. 

 

The Sweden Democrats want to go even harder and cut foreign aid in half. 

 

But even the current government has chosen to significantly reduce aid in 2022, citing that the money will go to receiving refugees from Ukraine. No other rich country has cut as much, according to a review by the organization Concord. 

 

Among the things that have been brushed aside is climate aid to East Africa. 

 

The timing of this, the year of the apocalypse in 2022, seems a little odd. 

 

Kind of like donating a pair of mittens in a heat wave but demanding them back when the first snow falls. 

 

The Swedish election is going to be a shocker. But regardless of the outcome, egoism seems to get its own majority. 

 

 

The crisis in Sri Lanka is likely just a foretaste of what lies ahead. Photo: Eranga Jayawardena / AP