South Asian Countries Face Fiscal Challenges Amid Twin Deficits and Savings Imbalance
The study looked at how budget deficits and current account deficits are related in South Asian countries. It found that budget deficits and private savings don't affect current account deficits in the long run. The idea that high budget deficits lead to high current account deficits was not supported in South Asia. In India and Pakistan, people tend to save more when the government spends more, but this wasn't the case in Bangladesh and Sri Lanka. Bangladesh and Sri Lanka have a hard time keeping their savings within their own countries, while India and Pakistan don't face this issue. To fix these problems, South Asian countries need to make changes to their fiscal and trade policies and have the government play a more active role in economic growth.