🌎 Macro#1) Inflation Domino: These 6 Countries Could be the Next Sri Lanka
Protests have erupted in multiple countries simultaneously
I am Sri Lankan and have witnessed the worst situation a country and my relatives can ever Unfortunately, it is not in the past tense. The inflationary pressure is still strong.
However, if you are an investor, I think it is pretty common to frame inflation as a phenomenon that triggers the FED (Federal Reserve) interest rate hikes and hence the stock market’s direction. For instance, the NASDAQ (07/28/2022) had a massive spike after the FOMC announced that the FED hike would be 0.75bps.
The common questions surrounding inflation are: would 0.75bps be enough to fight inflation? Would they increase the interest rates to combat inflation? If so, is this a perfect time to buy the dip?
But in reality, after talking to actual people in Sri Lanka, I have realized it is much more than that. The essential questions must be centered around how we should navigate and help each other through this inflationary environment.
The worse thing is that Sri Lanka is not the only country concerned. It may not get mainstream coverage, but the inflation domino seems to be just starting in other nations.
The world bank has written a blog post that bluntly questions whether we are ready for many developing nations to go bankrupt.
Over the next 12 months, as many as a dozen developing economies could prove unable to service their debt. — World Bank
Let’s look at 6 countries that could follow in Sri Lanka’s footsteps, experiencing protests and crippled economies.
1. Ghana
Ghana is suffering from rampant inflation, a depreciating currency, rising unemployment, and an economy crippled by the pandemic. As a result, since 2022/06, multiple protests have been against the parliament to reduce punitive economic policies and political corruption.
The price of petrol has risen from 14 Ghanian Cedis to 61 Ghanian Cedis (4.3x). Likewise, a bag of cement has risen from 28 Ghanian Cedi to 62 Ghanian Cedis (2.2x).
Today, the ordinary Ghanian is struggling to afford three meals a day. Not even two meals a day — Sammy Gyamfy, Arise Ghana Movement
Reported Inflation: 29.8% (06/22, Trading Economics)
Government Debt (% GDP): 84.6% (2022, Bloomberg)
Sovereign Debt Vulnerability Ranking: 2nd (2022, Bloomberg)
2. Tunisia
Thousands of protesters rallied against President Saied, demanding a return to democracy. The two slogans people were chanting were “People want democracy” and “Saied has led the country to starvation.”
Due to a lack of natural gas and crude oil resources, the nation imports half of its wheat from Russia and Ukrainian. As a result, high food and resource costs have significantly impacted the economy.
Saied has reiterated that he is working for an early resolution of negotiations to secure financial support from the IMF. He remarked, “We will undertake reforms at any costs, even accepting IMF conditions such as reducing citizen handouts and increasing the effectiveness of state-owned firms.
Reported Inflation: 8.1% (06/22, Trading Economics)
Government Debt (% GDP): 87.3% (2022, Bloomberg)
Sovereign Debt Vulnerability Ranking: 3rd (2022, Bloomberg)
3. Pakistan
While suffering from high inflation and a crippled economy, Pakistan is also undergoing a tremendous political reformation. Despite being removed from the government, Imran Khan has been running a vigorous campaign to retake it.
The country is widely divided, with different tribes, political factions, and rampant protests.
In addition, the Pakistani currency, the rupee, fell more than 7% against the dollar in one week. The weekly decline reached its largest since 1998. The victory of Imran Khan in a by-election for the provincial assembly was a factor in selling the rupee.
Despite these conditions, the IMF is expected to approve $1.3 billion in new aid for financially strapped Pakistan in August.
Reported Inflation: 21.3% (06/22, Trading Economics)
Government Debt (% GDP): 71.3% (2022, Bloomberg)
Sovereign Debt Vulnerability Ranking: 4th (2022, Bloomberg)
4. Kenya
There have been mass protests in Nairobi, Mombasa, and Kisumu from 07/2022 with placards reading: #nofoodnoelections and #lowerfoodprices.
There is an election coming on August 9th, and many voters who have been sidelined are using social media as an outlet to stir conversation and opinions.
Reported Inflation: 7.9% (06/22, Trading Economics)
Government Debt (% GDP): 70.3% (2022, Bloomberg)
Sovereign Debt Vulnerability Ranking: 6th (2022, Bloomberg)
5. Argentina
Similar to Pakistan, Argentina is struggling through a political reformation and economy.
The Argentinian peso has lost value so quickly that the government limits the amount of USD a citizen could hold.
Individuals are limited to purchasing up to $200 per month in foreign currency. For this reason, people who want to get rid of their pesos are rushing to exchanges, and the U.S. dollar is hitting new highs daily on the black market. For example, at an exchange store in the capital city of Buenos Aires, the dollar rose 15% in just one week to 337 pesos per dollar on January 22.
Protests have mainly begun on 07/10 to urge the government not to sign a loan revision agreement with the IMF regarding a $44bn loan (the largest amount in IMF history).
Reported Inflation: 64% (06/22, Trading Economics)
Government Debt (% GDP): 74.4% (2022, Bloomberg)
Sovereign Debt Vulnerability Ranking: 7th (2022, Bloomberg)
6. Panama
Panama has lower inflation, and its debt levels are not as distressed as other countries.
Yet, the country has seen its largest protest on July 18, 2022. Citizens are urging the government to take immediate action about the high cost of the essential family basket, the price and accessibility of medicines and social security, and the cost of fuel (40% increase in the last six months).
Protests have led to large blockades at multiple points. It has led to hundreds of people being stuck for many hours without access to hydration or food.
Reported Inflation: 5.2% (06/22, Trading Economics)
Government Debt (% GDP): 56.0% (2022, Bloomberg)
Sovereign Debt Vulnerability Ranking: 32nd(2022, Bloomberg)
You can see that many protests have started in the last couple of weeks, and it seems to be a battle that will not end anytime soon. And I believe this is just the tip of the iceberg.
The largest spate of debt crises in developing economies in a generation. — World Bank
Therefore, I thought it would be important to have an outlet where we can hear personal accounts of people going through an inflationary economy.
So I started a newsletter called “Inflated World,” where we would share authentic stories of people combatting inflation in their everyday lives. People in the same situation can use the newsletter for emotional support and guidance.
People in privileged positions would be able to understand the dire situation more personally and hopefully lend a hand.