An exploration of public debt in South Asian countries

Many countries witnessed a surge in their public debt levels after the COVID-19 pandemic and hence public debt issues were once again at the forefront. South Asian nations also saw a rise in their public debt levels. Unsustainable public debt led Sri Lanka to default on its sovereign debt in April 2022 and Pakistan witnessed severe difficulties in servicing its debt. Nepal, while not witnessing any imminent debt crisis, has, nonetheless, seen a meteoric rise in its public debt stock. Against this background, the report “The Political Economy of Debt” presents national studies on public debt in three South Asian countries—Nepal, Pakistan, and Sri Lanka.

A synthesis study prepared by Kshitiz Dahal, Senior Research Officer, SAWTEE, and Dr. Paras Kharel, Executive Director, SAWTEE, highlights the main insights of these three national studies. The study identifies what lies at the heart of the debt crisis witnessed by Sri Lanka and Pakistan, which offers valuable lessons to countries like Nepal on treading a sustainable path of debt accumulation. Mr. Dahal and Dr. Kharel also co-author the national study on Nepal’s public debt, which provides an assessment of whether Nepal is veering towards a path of unsustainable public debt accumulation, and identifies the key structural drivers of Nepal’s public debt accumulation. In addition, the report also contains national studies on what drove Sri Lanka and Pakistan towards a debt crisis.

To access the full report please follow the link: The political economy of debt