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Monday, February 26, 2024

“India Still Below 2002 Debt Level”: Finance Ministry Responds to IMF Report

The Finance Ministry responded on Friday to reports from the International Monetary Fund (IMF) cautioning India about alleged government debt vulnerabilities. The ministry asserted that certain presumptions made in the IMF report do not accurately reflect the current factual position.

A key point highlighted by the finance ministry is that the majority of India’s general government debt, encompassing both the Centre and states, is denominated in rupees, with external borrowings constituting only a small portion. The ministry emphasized the low rollover risk for domestic debt.

In the IMF’s Article IV consultations with India, it was suggested that, under adverse shocks, the country’s general government debt could reach a debt-to-GDP ratio of 100% by FY 2028. The ministry clarified that this extreme scenario was presented as a “once-in-a-century Covid-19” possibility among various favorable and unfavorable scenarios. The ministry stressed that the IMF was discussing a worst-case scenario, and it is not a predetermined outcome.

The finance ministry further noted that the IMF reports for other countries outlined even higher extreme scenarios, such as 160% for the US, 140% for the UK, and 200% for China.

The IMF report for India also indicated that, under favorable circumstances, the General Government Debt to GDP ratio may decline to below 70% in the same period, according to the ministry.

Despite global economic shocks like Covid-19 and the Russia-Ukraine war, the ministry highlighted India’s relative resilience. India’s general government debt level, it pointed out, remains below the 2002 level. The ministry emphasized that general government debt has significantly decreased from approximately 88% in FY 2020-21 to about 81% in 2022-23. Moreover, the Centre is reportedly on track to achieve its stated fiscal consolidation target, aiming to reduce the fiscal deficit below 4.5% of GDP by FY 2025-26.

For more updates stay tuned to FELA News!

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