Fiscal Deficit and Public Debt Sustainability: An Empirical Analysis of South Asian Economies

Abstract

Fiscal deficits and public debt continue to be central issues in the macroeconomic discourse of South Asian economies, where governments face the dual challenge of financing economic development and maintaining fiscal discipline. As the pressure to invest in infrastructure, healthcare, and social welfare increases, several countries in the region have resorted to high levels of deficit financing. This, in turn, has led to the accumulation of substantial public debt, raising questions about long-term sustainability and macroeconomic stability. This study offers a comprehensive empirical analysis of the relationship between fiscal deficits and public debt sustainability in five South Asian countries: India, Pakistan, Bangladesh, Sri Lanka, and Nepal. Using time-series data spanning from 2000 to 2023, it evaluates key indicators such as the debt-to-GDP ratio, primary balances, and interest payment burdens. The study employs both quantitative models and qualitative expert insights to assess fiscal health. It finds that while some countries have demonstrated a strong fiscal position and prudent borrowing strategies, others are at a critical juncture, teetering on the edge of sovereign default Recommendations focus on the importance of fiscal consolidation, efficient public expenditure, revenue mobilization, and institutional reforms to ensure that public borrowing contributes to economic growth without endangering financial stability.