MISERY OF THE ECONOMIES: Zimbabwe, Venezuela, Sri Lanka and China.
Economic crisis is a phase in an economic cycle in which an economy faces travails and difficulties for a long time. It could be a sharp drop in the economic state of the country, manifested in a significant fall off in production; a violation of existing production relations; bankruptcy of enterprises; and/or rising unemployment and inflation. The result of this could be a decline in the living standards of the population and a sharp decrease in the real gross national product. Concept of economic crisis first set foot in the social sciences literature in 1960’s, defined as ‘a period of difficulty, dismay or an emergency in the life of a country, a society or a corporation, or in relations of several countries.’
Here’s an insight into the economic crisis faced by some nations:
Zimbabwe
- The most neoteric
example of hyperinflation, wherein prices change so hastily that every day the
prices rise exponentially and money keeps on depreciating, virtually overnight
or even in the course of a day, is Zimbabwe. The Zimbabwean-currency struck a peak in
November 2008, reaching a monthly inflation rate of roughly around 79,000,000,000%.
- In 2006, the country printed 21 trillion ZWD to pay off loans from the IMF, later that year it again had to print another 60 trillion to remunerate salaries of soldiers, policemen and other civil servants.
- In 2007, there were extreme shortages of basic necessities like food, fuel, and medical supplies. IMF estimates for monthly-inflation-rate stuck over 115,000% by the end of the year and the government instituted a 6-month freeze on wages in September.
- Just days after issuing a $100 million bill, the Reserve Bank issued a $200 million bill and rounded-off bank withdrawals at $500,000, which at the time was equivalent to around $0.25 US. Prices were doubling every hour, and reports from the country illustrated that the price for a loaf of bread rose from $2 million to $35 million overnight.
- By April 2008, the $50 million note was equivalent to $1.20 US, while the central bank estimated that country’s economy contracted over 6% from 2007. In July 2008, the government ran out of paper to print money as European suppliers of paper stopped supplying the country due to humanitarian concerns.
- The situation became grim. Shops in the country simply refused the ZWD and USD. The South African Rand became the de facto medium of exchange. Inflation finally came to the termination with direct involvement of the Reserve Bank of Zimbabwe that repriced the currency, pegging it to the US dollar.
Venezuela
- The government headed by Nicolás Maduro, declared a state of emergency in 2016. The inflation rate hit 800% and the situation have since gone from bad to worse in the following years
- Since 2017, the USA has provided more than $1.9 billion in financial aid to the nation, according to the State Department and recently an investment of $336 million in humanitarian and economic aid was made.
- More than 75% of Venezuelans are now living in extreme poverty. The number has increased by about 10% from last year, from 67.7% to 76.6% this year, according to the 2020-2021 National Survey of Living Conditions.
- The country is in
the middle of a political and economic crisis that includes shortage of key and
basic goods such as medication and food, hyperinflation, and a lack of
electricity. The prices are increasing every hour, and stocks of supplies in stores
depleting with time, is the reality that underpins Venezuelan crisis.
- So far in 2021, things aren’t looking too bad. Venezuela has managed to bring the monthly-inflation-rate below 50%, since in the first seven months.
- The price-hike slowed down noticeably: 46% in January, 33% in February, 16% in March, 24% in April, and 28% in May, according to data released to date by the Banco Central de Venezuela (BCV).These monthly price-hike rates are huge if you compare them to any normal economy in the world.
Sri
Lanka
- Since 2014, Sri Lanka has been witnessing a sharp rise in foreign debt. By 2021, the foreign debt rose to 101% of the nation’s GDP and crashing the economy.
- In 2021, the Sri Lankan government officially declared the worst economic-emergency crisis in the nation amid rising food prices, depreciating currency, depleting forex reserves and rising foreign-debt.
- The pandemic has hit the tourism industry of the nation, which has led to a drop in forex reserves from $7.5 billion (2019) to $2.8 billion (2021). With the shortage in supply of forex, Sri Lankans had to shell out money to purchase forex necessary to import the goods. This has depreciated the value of Sri Lankan rupee by 8%.
- The nation heavily relies on imports to meet basic food supplies and so the prices of food have been rising with its depreciating currency. National army has been assigned to distribute food supplies at a subsidized rate and this could lead to severe shortages as demand is exceeding the supply as of now.
- Besides this, the President planned on making Sri Lanka the first-ever country with a 100% organic agriculture sector, thus banning the use of chemical-fertilizers in farming. This dampened the agriculture-production of the nation.
- Still the government has refused to end its aggressive push towards complete-organic farming claiming that it will reap benefits in long-run.
- Even the spot-market trading of the nation has dried up since the central bank’s ban on spot trading at above 200 rupees/USD.
China
- Evergrande became one of the biggest real-estate developer groups in a very short span of time, contributing around 2% alone to the Chinese economy. China’s second largest real estate company, often described as ‘the world’s most indebted property developer’, is estimated to be facing a liquidity crunch that stands cumulative over $300 billion.
- Evergrande’s share prices have seen a downfall of about 80% this year.
- Experts believe that the main reason for company’s downfall is its highly ambitious expansionary moves. The company heavily borrowed funds for different ventures.
- Evergrande owes $7.4 billion to foreign investors in bond payments in the next year itself. Evergrande bond-notes have traded at 25-50 cents on dollar. Trading in debt was so frenzied at one point that the regulators had to stop the trading briefly.
- As the news of Evergrande-crisis emerged, metal stocks took the first hit with a drop in prices of industrial metals and ores across the globe. Worldwide markets registered drops with S&P 500 sliding by 1.7%, its lowest since May.
- The housing-market in China could be in a turmoil. There is now enough vacant property in the country to house a population of 90+ million and that is enough to fit the entire population of a country like Canada or France.
Economic Crisis are complex and devastating events, and thus forecasting their
happening is intrinsically problematic. With the abovementioned examples, it is
quite clear as to how gruesome it can get. In a stroma like this, a good
government can act as an anchor for the sinking ship and so if a crisis hits
the global economies, a good governance can step in and always lower the impact
of the fall.
~ Falak Doshi
(TYBA)
~ Rutuja Kamble (TYBA)
References:
https://www.colombotelegraph.com/
Very well written!!
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