The dollar’s strength is placing pressure on economies around the world, including in developing Asia. What makes this bout of dollar strength unique is that the stress is not limited to Asia’s developing economies.
Asian economies are diverse and the direct financial impact of dollar strength varies. Some regional economies have significant foreign currency debts and limited foreign currency reserves. Unsurprisingly, these economies are in financial trouble.
Sri Lanka defaulted on its bonds earlier in the year and is now trying to restructure its external debt. Pakistan has had to seek an emergency financing package from the International Monetary Fund, backstopped with pledges of additional support from both China and the Gulf. Bangladesh has proactively sought out IMF financing in the face of a terms of trade shock. Laos is, in all probability, relying on the continued forbearance of China’s policy banks to manage its unsustainable debt loads. All these countries are struggling to pay for imports of oil and natural gas.