External Debt Distress in South Asia: Evidence from Panel Data Analysis

This study is an attempt to explore social and economic determinants of external debt distress in five selected South Asian countries, that is, Bangladesh, India, Nepal, Pakistan and Sri Lanka, from 1980 to 2018, by using the contemporary panel fixed effect model and system generalized methods of moments. The findings revealed that the major determinants of external debt distress in selected South Asian countries are large and increasing current account deficits, lower gross capital formation, foreign direct investment and large military expenditures. Among selected socio-economic variables, the increase in life expectancy increases external debt distress, whereas urbanization reduces it considerably. The study urges selected South Asian countries to correct highly unfavourable current account balance, resolve regional conflicts leading to the reduction of the arms race and make the macroeconomic environment friendly for domestic and foreign investment to reduce exploding external debt distress.