Precarious Tightrope Between External Debt and Economic Growth: A Comparative Analysis of Bangladesh and Sri Lanka

Authors

  • Ramshah Tajammal University of Management and Technology,  Lahore. Author
  • Sadia Butt University of Management & Technology, Lahore. Author

DOI:

https://doi.org/10.62345/jads.2024.13.2.6

Keywords:

External Debt, Economic Growth, ARDL Approach, South Asian Economy

Abstract

In recent years, the foreign debt in South Asian economies has risen to concerning levels, suggesting that these governments are unable to generate enough revenues to finance their budget, which could most likely increase the risks of a debt crisis. This study looks at the relationship between foreign debt and the economic growth of two South Asian countries—Sri Lanka and Bangladesh—using Autoregressive Distributed Lag (ARDL) models from the period of 1984 to 2022. The comparative results demonstrate a persistent detrimental impact of foreign debt on both countries' economic growth trajectories. Moreover, our research emphasizes the importance of the debt-to-ԌDP ratio, suggesting that a higher percentage of external debt increases the adverse impact on ԌDP growth. The study compares the external debt levels of both countries and its consequences on their economies. Both Bangladesh and Sri Lanka suffer negative consequences from external debt. However, the study indicates that Sri Lanka, burdened with heavier debt, experiences a more pronounced impact on its economic growth trend as compared to Bangladesh. The study aims to address the pressing issue of rising foreign debt in South Asian economies, provide empirical evidence of its impact on economic growth, and offer policy recommendations. The findings have implications for both Sri Lanka and Bangladesh, emphasizing the importance of managing debt effectively.

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Author Biographies

  • Ramshah Tajammal, University of Management and Technology,  Lahore.

    MS Scholar, Dr. Hasan Murad School of Management (HSM), University of Management and Technology, 
    Lahore, Pakistan. Email: ramshahtajammal@gmail.com

  • Sadia Butt, University of Management & Technology, Lahore.

    PhD Scholar, Dr. Hasan Murad School of Management, University of Management & Technology, Lahore.
    Corresponding Author Email: F2018051001@umt.edu.pk

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Published

2024-05-28

How to Cite

Precarious Tightrope Between External Debt and Economic Growth: A Comparative Analysis of Bangladesh and Sri Lanka. (2024). Journal of Asian Development Studies, 13(2), 76-90. https://doi.org/10.62345/jads.2024.13.2.6

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