The study provides an overview of the debt and deficit scenario of the three South Asian countries ie Pakistan, India and Bangladesh. The study is aimed at assessment of various factors that contributes towards change in debt-to-GDP ratio which includes interest rate-growth differential, foreign exchange effect and primary budget deficit. The paper also studies the impact of exchange rate changes on foreign debt of these countries and fiscal deficit of Pakistan, India and Bangladesh has been studied with reference to Revenue-Expenditure (RE) gap and Saving-Investment (SI) gap. Trends in these factors have been assessed over the time period of 1994-2008. In Pakistan, all macro indicators have been affected by high fiscal deficits and strategy of financing that in last two decades. All the available resources have been absorbed by huge borrowing to finance the deficits of country and on the other hand India is one of the fastest growing economies of the world but even of this fact economy is heavily indebted as India also does not try to mobilize its resources. Bangladesh, one of the poorest countries of the world is not that much heavily indebted as that of Pakistan. The people are facing the same types problems such as poverty, lacking of basic facilities of life including health, education etc. and all the three countries are trapped in domestic and foreign debt. The respective governments must take initiatives that aimed at the reduction of debt trap in countries and the situation will continue to prevail if the corrupt governments of respective countries will not change their habits.