Emerging economies under threat
Amidst the continuing chaos in the global economy much hope was based
on emerging economies such as China, India and Brazil which demonstrated
higher growth, low inflation and active stock markets, however with the
never-ending Euro crisis and disputes, strong growth prospects seem to
be diminishing. Even the US economy recovery is under threat. The
economies across the world are struggling ,while the Euro Zone is far
from settled. Euro Zone Banks are facing a major threat from defaults.
The much-threatened Greek exit may further destabilise the already
affected Euro Zone.
A file photo taken on June 16, 2012
shows people attending a demonstration against bank fraud in
Madrid. Not content to sit out the economic crisis cushioned
by their pensions, the elderly are joining in a wave of
social protests in Spain, protesting noisily in support of
younger fellow citizens. AFP PHOTO JAVIER SORIANO
"A global recovery that falters so soon after the previous recession
points towards widespread stagnation". The EU worlds biggest economic
area could plunge in to a spiral of Bank busts,defaults and depression
leading to a financial calamity"
Within limited alternatives investors are said to be rushing for bond
issues in USA, Germany and America. Economies have weakened across the
globe amidst a totally unsettled Euro Zone. Euro Zone banks are under
threat from possible defaults and Bankruptcy.
Some of the best performing stock exchanges in the world are now
struggling. Even the US economy that showed early promise is now slowing
down and facing a crisis. The much-talked of Greek exit if implemented
may further destabilise the Euro Zone crisis.
In Asia, both China and India recovered well after the global
financial crisis to record impressive growth and BOP surpluses to emerge
as leading economies in the world. Amidst a deteriorating global
economy, India which expected to be an economic powerhouse in 2020 is
now experiencing a low growth regime. Consequently, losing its strength
with declining private investment and GDP growth. Most emerging
economies that made a promising recovery following the 2008 global
financial crisis are now going on the reverse.
The Indian government comprising a coalition of different parties,
politicised bureaucracy and the rigidity of civil service too has become
an obstacle in implementing reforms to arrest the declining trends.
"Instead, the dreary conclusion is that India's feeble politics is
now ushering in several years of feeble economic growth. Indeed the
politician's most complacent belief is that voters will just put up with
feeble growth because the public is only concerned with handouts" Sri
Lanka after a tremendous comeback, the economy beamed with a new found
enthusiasm, booming stock market, oversubscribed IPOs and much-need
However, a loose credit policy resulted in the upsurge of imports
that put the Balance of Trade to unmanageable levels prompting the
government to implement tough policy measures that was even welcomed by
Government borrowings from the Banking sector too rose to higher
levels. In brief Sri Lanka was also feeling the global meltdown with
diminished demand for exports and rising import costs.
The Government also made use of the opportunity to raise fuel prices
to provide some relief to the ailing CPC. At present, the Ceylon
Electricity Board (CEB) is in a deep financial crisis due to the high
cost of fuel and the adverse effect on the hydropower capacity.
The Government is also losing revenue on the badly managed
loss-making State Owned Enterprises (SOE), these SOE's are suffering
from lack of good governance, incompetent personnel and political
interference. It is to the credit of a few SOE's such as the Bank of
Ceylon, Peoples Bank and Sri Lanka Ports Authority which are
well-managed that provides surpluses. The only recipe for sick and
ailing SOE's are competent personnel in management and flooding the
SOE's with political supporters.
The latest review assessment by the rating agency Standard and
Poor(SandP) seems to be over critical in their latest report released on
They have stated that our economic risk score for Sri Lanka reflects
a 'Very high risk' assessment of economic resilience and credit risk of
the economy and a high risk assessment of economic imbalances. S and P's
adverse comments on Central Bank regulations, governance and
transparency of Banks too seems unrealistic. S andP was also critical of
the Central Bank overseeing the Employees Provident Fund. However, the
Central Bank responded almost on the same day disagreeing with S and P
and explaining the rationale of the Central Bank's role.
The Government has been successful in sailing through a series of
price increases sans any major public upheaval. Like in India, Cricket
has been the great leveller to keep people happy!