Abstract:
The paper examines sustainability of public finances for five major South Asian
economies namely, India, Pakistan, Bangladesh, Sri Lanka and Nepal for period 1985-2014. The
results of Gregory–Hansen (1996) and Carrion-i-Silvestre and Sanso (2006) tests confirm
presence of long-run relationship between government revenue and expenditure for all the
countries. The ARDL estimates of fiscal reaction function indicate positive long-run response of
primary balance to rising public debt ratio in case of India, Bangladesh, Pakistan and Sri Lanka.
The empirical results thus demonstrate coherence with intertemporal budget constraint for the
countries. However, except for Bangladesh, sustainability exists only in weak form underscoring
the need to reinforce commitments to long-term fiscal discipline.