Abstract:
Using multicointegration, this study analysed the level of debt sustainability in the SAARC region (excluding Afghanistan).An important part of the approach adopted was to test the existence of policy response of respective governments and prove empirically if they have been corrective in nature. It was found that multicointegration existed in the case of India and Sri Lanka only. However, the data series for revenue and expenditure exhibited cointegration for Pakistan and Bangladesh. The results showed that debt was not sustainable either because of the absence of policy response (in case of Pakistan and Bangladesh) or even if it was present, the response was not in the correct direction (in case of India and Sri Lanka).
