ABSTRACT
The South Asian countries have experienced uneven development since independence. Economic mismanagement has been the root cause of the problems faced by the economies of the South Asian region. Based on major economic indicators, in the 1960s, the South Asian economies performed better than many countries in the Southeast and East Asian region. However, by the 1990s, the Southeast and East Asian economies had outperformed the South Asian region and their growth pattern is believed to be sustainable. On the other hand, a fair assessment of the South Asian region reveals a long period of stagnation. The economic mismanagement of the regional economies resulted in market distortions, inefficiencies, misallocation of resources, and higher income inequality. These internal sector inefficiencies were visible in the system of revenue collection, heavy reliance on the public sector, and oversized governments. The result was a high and persistent budget deficit. A lack of well-developed money and capital markets, a centrally controlled central bank, and a system of directed credit extension through the banking system further exacerbated the problem and gave rise to other issues such as high inflation, low foreign reserves, unstable currency, and a current account deficit. The simultaneous occurrence of deficits in both the budget and current accounts is known as the problem of “twin deficits.”
