Key drivers of international debt in South Asia: Insights and analysis

Abstract

This study evaluates the factors of international indebtedness in some selected South Asian nations. Employing panel data for eight South Asian countries in a time period from 2000 to 2023, a study employed the CS-ARDL method. In this case, the dependent variable is external debt stock, while the independent variables are GDP growth, inflation rate, current account deficit, capital account deficit, gross domestic savings, and public expenditure. According to the results, GDP growth and gross domestic savings are significant negative determinants of external debt stock, which indicates that economic growth and savings reduce dependence on external borrowing. In contrast, a higher inflation rate, current account deficit, capital account deficit, and public expenditure increase the demand for external financing. Consequently, these factors will increase the external debt stock.