EXTERNAL DEBT SUSTAINABILITY AND ECONOMIC GROWTH IN SRI LANKA

Abstract

This research aimed to investigate the relationship between External Debt Sustainability and Economic Growth in Sri Lanka. Research area is limited the study knowledge to global context. Therefore this study was initiated to fill Empirical gap. Also, to the researcher’s knowledge, in Sri Lankan context there is no study that has made comprehensive treatment to the study area and because of there is no study that included statistics after 2000, Performance Gap will be also addressed. This study is based on quantitative measures. Study ran an ARDL causal relationship test to identify the relationship between Debt Sustainability and the Economic Growth in Sri Lanka. Model is more robust and performs better for small sample size of data which suitable for this research also. Augmented Dicky-Fuller (ADF) test was carried to check unit root and to identify the Long-run equilibrium relationship between each variable. Gross Domestic Product, External Debt Servicing, Human Capital, Labour Force and Capital Stock variables were employed in this study. Data were collected from Department of Census & Statistics Sri Lanka, Annual Reports of Central Bank of Sri Lanka, World Development Indicators (World Bank) and Economic & Social Statistics (Central Bank of Sri Lanka) for 30 years from 1990 to 2019. Study found that the External Debt Sustainability does not have a long run relationship with Economic Growth in Sri Lanka. Study also identified that there are three variables with significant impact on Gross National Product. Only the External Debt Servicing variable does not have a significant impact on Gross National Product.