The fault in our policymakers

The Russian invasion of Ukraine in February 2022 sent inflationary shockwaves to nearly all oil-importing countries, including the US. The US responded by adopting a tight monetary policy regime manifesting in several rounds of interest rate hikes that weakened a basket of currencies against the dollar. With weaker local currencies and a rising oil import bill, emerging markets faced a double jeopardy of swollen current account deficits (CAD) and bourgeoning debt servicing and repayment obligations. The ruling elite in many of these countries assuaged their constituencies by shifting the blame to supply-chain disruptions caused by the Russia-Ukraine conflict. The events that took place in Egypt, Pakistan and Sri Lanka later reflected that follies committed by policymakers brought each of these three countries on the brink of default.