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An Empirical Analysis of Determinants of Foreign Debt: The Case of Sri Lanka

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  • V Krishna Chaitanya

Abstract

The foreign debt burden of Sri Lankan economy has assumed utmost importance as the volume of debt has reached alarming proportions in the recent past. The debt crisis was triggered by the heavy increase in fiscal deficit. The increase in fiscal deficit was due to massive spending by the government on defence and military because of the escalation of the internal war with the LTTE rebels. At present, Sri Lanka belongs to the category of moderately indebted to low indebted nation. However, this is not due to effective debt management, but due to the waiver and writes-offs of a large amount of debt by international donors due to the Tsunami incident in 2004. Using an econometric model, this paper investigates the determining factors of foreign debt of Sri Lanka from 1980 to 2004. The paper uses an empirical model using some macroeconomic variables, which would allow obtaining some general characterization of growth of foreign debt in Sri Lanka.

Suggested Citation

  • V Krishna Chaitanya, 2007. "An Empirical Analysis of Determinants of Foreign Debt: The Case of Sri Lanka," The IUP Journal of Financial Economics, IUP Publications, vol. 0(3), pages 84-91, September.
    • Handle: RePEc:icf:icfjfe:v:05:y:2007:i:3:p:84-91
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