Sri Lanka and Argentina Lead Rankings of Most Vulnerable Economies – Study By Reuters

LONDON (Reuters) – A recent study indicates that Sri Lanka and Argentina are particularly susceptible to worsening global financial conditions, while China has experienced a significant decline in financial resilience compared to its status before the COVID-19 pandemic.

The research, conducted by a Washington-based think tank, evaluates the economic and financial impact on countries in the event of an external shock. It utilizes data from reputable sources, including the International Monetary Fund and the World Bank.

According to the study, China has become the "most weakened country" among a sample of 37 nations, having previously been ranked among the top 10 resilient emerging economies in 2019 but slipping to 18th position by 2023.

Overall, emerging markets are now more vulnerable than they were in 2019, as noted by economist Liliana Rojas-Suarez in the report. She explained that the lasting effects of the shocks experienced between 2020 and 2022, which began with the COVID pandemic and were compounded by events such as Russia’s invasion of Ukraine and rising interest rates in the United States, have severely weakened the economic and financial conditions of these markets.

Sri Lanka has been particularly hard-hit, facing a severe shortage of dollars that led to its worst financial crisis since gaining independence in 1948. This crisis resulted in the country’s first foreign debt default in May 2022. Meanwhile, Argentina is grappling with its sixth recession in a decade, characterized by triple-digit inflation and negative foreign net reserves.

The study further reveals a decline in debt sustainability over the past four years among emerging market economies. In 2019, only Tunisia, Pakistan, Argentina, and Sri Lanka had external financing needs exceeding 100%. Currently, this figure has risen to 12 out of the 37 countries analyzed, indicating that these nations face significantly large and unsustainable public debt ratios.

The report assessed external financing needs by measuring short-term external debt combined with current account deficits as a percentage of international reserves.

Countries such as Bolivia, Egypt, Turkey, and El Salvador have also been identified as vulnerable, while Indonesia, Peru, and Bulgaria were recognized as the most resilient nations in the group.