International Economics: IB Economics

This article looks at the current state of the Nigerian economy - with inflation running at 30%, the naira having depreciated by two-thirds, with the pegging of the naira to the dollar having been abandoned and many households facing a cost of living crisis. 

However,  whilst President Tinubu is bearing the brunt of the blame, it's arguably the case that he's being blamed for the sins of his predecessors.

Prior to being scrapped, Nigeria's fuel subsidy accounted for 15% of government spending, more than was spent of education and healthcare. Equally, the pegging of the currency had a significant opportunity cost. Additionally, the previous Buhari government had stoked inflation by asking the central bank for a $19billion loan - financed by printing money.

As a result, the Tinubu camp are arguing that drastic measures, and a period of suffering are necessary to allow the economy to recover, and that greater emphasis on the free market will pay substantial dividends in future.

The IMF has approved a $3bn bailout package for Pakistan, including an initial tranche of $1.2bn , as well as substantial funds from Saudi Arabia and the UAE. 

Pakistan's economy faces a number of challenges: sluggish growth, official inflation of 30% and interest rates of around 22%, and a lack of foreign exchange. That said, the country has received more than 20 loans from international financial organisation which rather implies ongoing structural problems, not least high levels of corruption. 

This Reuters clip highlights one of the disadvantages of free trade - it exposes economies to global economic shocks - and in this case, food shortages in India, and restrictions on its export have adversely affected the Senegalese economy, where consumers have become dependent upon imported rice, and a drain on forex reserves. 

So what's the solution? The market will ultimately resolve the issue - but the problem is that it will take time, and that the consumers actually prefer imported rice. 

It seems as though the IMF are close to striking a deal to provide a nearly $3 billion loan to tackle the South Asian nation's debt crisis. That said, this is only part of the problem - the economy still has to restructure its debts to a number of international creditors. 

However, should everything fall into place, the IMF loan would allow the government greater freedom in making its policy choices, and replenish the nation's foreign exchange reserves, allowing for renewed imports of essential items like fuel and medicines.  

Story of the day for me: the Pakistani government have called for citizens to drink less 'chai' - or tea - to help preserve the country's foreign exchange reserves. The reason is that Pakistan is a net importer of tea, and so every cup consumed means that valuable foreign exchange leaves the country. 

And they don't want to end up like Sri Lanka...

It seems as though Russia has avoided defaulting on some of its foreign debt, meeting debt interest payments in dollars, despite having many of its overseas assets frozen. That said, the head of the Russian central bank has admitted their were difficulties in making the payments. 

Might one suggest that I'm fairly certain that President Putin and his cronies might well have access to sizeable dollar assets. I wonder how the bulk of the Russian people might feel, if they were made aware of the extent of their wealth - not that they ever will given extent to which there's state control of the media.

It seems as though Nepal is also struggling with declining foreign exchange reserves, as a result of falling remittances and lower levels of tourism than previously. As a result, forex reserves are now nearly 20% lower than they were 6 months ago - and the government have taken steps to limit imports.

However, the consensus is that Nepal isn't close to experiencing a Sri Lanka style financial crisis - it's currency reserves are considered to be relatively healthy and the level of government debt, 43% of GDP isn't seen as particularly threatening. 

Is Russia going to default on a tranche of dollar-denominated bonds today? It is due to make $117m interest payments but its access to $630bn currency reserves has been frozen.

Russia is suggesting that it will attempt to pay its creditors in roubles but whilst there are some of its debts where this might be acceptable, this isn't the case with these bonds. 

The IMF are confident that this won't trigger a global financial crisis, but we shall see...

This Guardian article looks at how the pandemic has really had a severe impact upon the Sri Lankan economy with at least half a million people having slipped into poverty and rising food prices threatening to add to this. 

In addition, it seems that the government have made some odd policy choices - banning the use of fertiliser, for example - which have compounded the country's problems. Additionally, the collapse of tourism has had a significant adverse impact; factor in high levels of debt, not least to China, and a lack of foreign exchange reserves and many people are predicting both a humanitarian and a financial crisis in this small developing economy. 

This IMF clip looks at how IMF help, and a stabilization programme worth $1.2bn has helped Ghana adopt structural reforms and improve its economic performance. 

The metrics look impressive: growth looks more resilient, inflation is rapidly declining, the economy's fiscal and external positions improved and the Central Bank has boosted its forex reserves. In theory, this should improve the economy's developmental prospects, but you'd have to ask the citizens of Kumasi, Ho, and Takoradi whether that's the case or not. .

Not a good week for South Asia, with Pakistan having struck a deal with the IMF to secure $3bn of emergency funding, on the back of having raised its interest rate to 22%. 

The economic crisis has various triggers, not least the recent terrible floods in Pakistan and the global energy and commodity price crisis meaning that inflation in the economy is currently running at 38%. 

That said, there have been ongoing issues regarding macroeconomic stability and a lack of foreign exchange reserves. 

A shortage of dollars in Egypt, used for paying for some goods and services is driving inflation higher. In many developing economies, people are keen to receive payment in dollars because dollars retain their value. 

As a result, for many of these goods, prices are increasing because of the relative shortage of dollars, and this means that some people are unable to trade - notably car dealers - and others are unable to buy goods that previously they could afford. 

The extent of the crisis in Sri Lanka laid bare - non-essential petrol sales have been halted for two weeks, schools closed and people told to work from home. The country has insufficient foreign exchange to buy more fuel.

And yet, and here's the issue that's symptomatic of why Sri Lanka is where it is: I'll wager that the powerful and well-connected will still be driving around Colombo in their 4x4 vehicles, or finding exemptions that enable them to buy fuel.

Russia has avoided defaulting on its debt - for now, although there are other deadlines later in the month - and avoided the possibility of having various credit lines withdrawn by making interest payments of around $650m. 

However, it has had to do this with forex reserves located outside of the US and the EU and this might deprive it of resources for the Ukraine conflict. 

The last time Russia defaulted upon its debt was in 1998, which precipitated an economic crisis. 

Sri Lanka's government has started to default on its debt, according to two rating agencies - and this has implications for the overall economic health of the country. 

The shortage of foreign exchange is so bad that the new governor of the central bank has asked for an expatriates to increase remittance payments if they can. 

Longer-term, even with an IMF loan, the country's economic prospects aren't looking good. 

The sorry state of the Sri Lankan economy pains me - as someone who lived there for three years, and can still sing the Sri Lankan national anthem. 

The country is experiencing extended power cuts, lacks fuel and the once-buoyant tourist sector is on its knees, as the country lacks foreign exchange to buy these items. As a result, the rupee has depreciated significantly, and this adds further cost pressures for both exporters and consumers alike. 

However, the real issues are deep-seated - arguably, Sri Lanka has been badly governed for many years - with the democracy still in the hands of a narrow clique of dynastic politicians who've dominated the country for many, many years. And until this is resolved, I find it highly unlikely that the country will be able to move on. 

The rising cost of living in Sri Lanka is laid bare in this BBC article, which highlights how people have shifted away from cooking on gas stoves to cooking on firewood, have altered their diets and have reduced the number of daily meals they have, all of which have adverse developmental effects.

From a macroeconomic perspective, the government have stepped in to control the price of essential imports and preserve scarce foreign exchange reserves. The country is also facing higher debt financing requirements but it isn't the only South Asian nation in this position. 

Again, another article that reveals the importance of macroeconomic stability for development. 

Good news for Sudan, with the IMF clearing Sudan's $50bn arrears to the institution, and in doing so, hopefully improving Sudan's economic problems. 

The country currently has shortages of essential goods, inflation of 300% and a foreign currency shortage - and it is hoped that this will enable the new government to start tackling deep-seated economic problems via the Highly Indebted Poor Countries (HIPC) initiative.