South Asia has become one of the most debt-stressed regions in the world, with the region’s total debt at close to $4 trillion. In 2022, Sri Lanka became the first Asia-Pacific nation to default in the 21st century. Pakistan and Maldives came close to default and countries like Bangladesh and Nepal have structural issues that could exacerbate their debt problem in the long term. The region has been quite dependent on the lender of last resort, the International Monetary Fund (IMF) with 84 IMF programs in total over the decades.
Sovereign debt crises nowadays are not just economical but also geopolitical, directly shaping national sovereignty. Weak fiscal accounts and current accounts lead to borrowing externally, thus reducing policy autonomy and leading to rising foreign influence. South Asia’s growing sovereign debt burden is becoming a key determinant for geopolitical alignment in the Indo-Pacific.
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