The IUP Journal of Applied Finance
Sovereign Debt Crisis in Sri Lanka and Bangladesh: A Comparative Study

Article Details
Pub. Date : April, 2023
Product Name : The IUP Journal of Applied Finance
Product Type : Article
Product Code : IJAF020423
Author Name : Paritosh Chandra Sinha
Availability : YES
Subject/Domain : Finance
Download Format : PDF Format
No. of Pages : 28



Using IMF's World Economic Outlook (WEO) data for the macroeconomic variables, this study comparatively examines the sovereign debt crises in Sri Lanka and Bangladesh. It identifies different macroeconomic factors related to the sovereign debt crisis, investigates their interrelations, and explores if their debt crises are similar. It shows that the general revenue to Gross Domestic Product (GDP) ratios of Sri Lanka degraded to converge with the upgrading status of Bangladesh during the Covid-19 period. Since 2010, Sri Lanka has maintained a well-off economic status with per capita GDP, while Bangladesh has a long way to go yet. The general expenses to GDP ratio of Sri Lanka shows stresses on its GDP, while that of Bangladesh is more relaxed. Sri Lanka has overstressed debt to GDP ratio along with Balance of Payments (BOP) deficits, while Bangladesh has continued traces of managed debt to GDP ratio along with BOP surpluses. Bangladesh has taken enough precautions in their sovereign debt management, compared to Sri Lanka. Even in 2020, Bangladesh maintained progressive investment track over the threshold limit of 30%, while Sri Lanka fell into a debt trap. Following the pandemic, Bangladesh has enjoyed a gross national savings to GDP ratio of above the threshold of 25%, while Sri Lanka is going through a critical phase. It shows governance myopia of Bangladesh regarding its imbalanced current account positions, while governance myopia of Sri Lanka exists with reference to its imbalanced current account positions, adverse gross debts, and government borrowing as well.


The present debt crises of Sri Lanka and Bangladesh have a similarity to the sovereign debt crisis of Greece during 2009-2018, which was caused by the European nation's adverse sovereign debt burden due to the populist politics of its myopic political leaders. The Greek crisis surfaced during the Global Financial Crisis of 2007-2008, but was continuously overlooked by its political leaders, while its economic adjustment programs remained unsustainable till the bailout package in August 2018. The other main causes of Greek's sovereign debt crisis were less collection of taxes by its democratic governments, while they had a huge public burden of payment of government pensions to their senior citizens.

Sri Lanka and Bangladesh are the latest victims of sovereign debt crisis. During the last decade, their economies flourished due to foreign remittances by their expatriate workers. The Gross Domestic Product (GDP) of Sri Lanka is mostly dependent on the primary and service sectors which are respectively skewed towards tea exporting business and tourism from developed countries like China, Russia, and Ukraine. On the other hand, the GDP of Bangladesh is mostly dependent on agriculture in the primary sector and garments manufacturing in the secondary sector, and remittance by its expatriates. Briefly, while the