MUMBAI — For over a decade, Mattias Martinsson has been investing in frontier economies, including Pakistan, Bangladesh and Sri Lanka. Now, he says, South Asia is “in the eye of the storm.”
“The next couple of months will be painful for the South Asian markets,” predicted Martinsson, chief investment officer at $220 million Swedish fund Tundra Fonder. “There is a high possibility that we will see both inflation and interest rates rising and currencies depreciating.”
Sri Lanka’s rapid descent into the economic abyss has shocked the world. As the country’s accessible foreign reserves dwindled to next to nothing and citizens suffered under acute shortages of fuel, food and medicine, the government last month “preemptively” defaulted on its international debt for the first time.
But while the Indian Ocean island is the most desperate country, it is not alone. From the beaches of the Maldives, to the mountains of Nepal, to the bustling streets of Pakistan, much of South Asia faces similar risks from shrinking forex coffers and surging global inflation. While countries around the world are feeling similar headwinds, South Asia is home to a particularly vulnerable cluster — one that is in focus this week as India’s central bank meets, a Maldivian bond matures, and Pakistan prepares its budget.