IMF India debt projection: Forecast ‘misconstrued’, says finance ministry

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India has rejected the International Monetary Fund’s (IMF) projection that the country’s public debt could cross 100 percent of GDP by 2027-28, calling it “misconstrued”, PTI reported. In its statement, the finance ministry clarified that the debt situation in India is not as alarming as it was supposed to be and highlighted several points to substantiate its position.

“It is also notable that the same report suggests that, under favorable circumstances, the public debt-to-GDP ratio could fall to below 70 percent over the same period. Therefore, any interpretation that the report implies that government debt would exceed 100 percent of GDP in the medium term is misunderstood,” the ministry said in its rebuttal to the IMF report after the annual Article IV consultation with the Indian authorities.

Also Read: IMF warns of India’s rising debt and climate change risks, but government disagrees

Comparative analysis of debt

Contrary to the IMF forecast, India highlighted that other major economies face daunting debt scenarios. The ministry pointed out that the US, UK and China are estimated to face significantly higher debt-to-GDP ratios of around 160, 140 and 200 percent, respectively, under their “worst-case” scenarios. In contrast, India’s projected ratio of 100 percent appears more modest.

The ministry also disputed any notion that national debt would exceed 100 percent of GDP in the medium term. Referring to the same report, the IMF highlighted the possibility that the debt-to-GDP ratio would fall below 70 percent in a given period under favorable conditions.

Also Read: IMF reclassifies India’s exchange rate regime to ‘stabilized arrangement’ due to RBI’s forex interventions

Highlighting the positive fiscal trends, the ministry highlighted the decline in public debt from around 88 per cent in FY21 to around 81 per cent in 2022-23. It reaffirmed its commitment to achieve fiscal consolidation targets to reduce the fiscal deficit below 4.5 percent of GDP by FY26.

“States have also individually enacted their fiscal responsibility legislation, which is monitored by their respective state legislatures. Therefore, government sector debt is expected to decline significantly in the medium to long term,” it said.

Also Read: India expected to contribute more than 16% to global growth, says IMF

Domestic Stability Key, says India

While acknowledging the reduced budget deficit, the IMF pointed to increased public debt, which encouraged India to strengthen fiscal reserves. The ministry opposed and pushed for additional revenue and expenditure measures such as GST and subsidy reforms, prioritization of public investment and targeted support to vulnerable sections.

Responding to concerns about the composition of the debt, the finance ministry emphasized that India’s debt is largely denominated in rupees, with minimal contributions from external borrowing. Emphasizing the stability of domestic debt, mostly in government bonds with longer maturities, she emphasized low rollover risks and limited exposure to currency volatility.

Also Read: India is the star of the International Monetary Fund, but its report is not entirely glowing

“This was highlighted in the IMF Report. Domestic debt issued, mostly in the form of government bonds, is mostly medium or long-term with a weighted average maturity of around 12 years for central government debt. Therefore, the rollover risk is low.” for domestic debt and exposure to exchange rate volatility tends to be on the lower end,” he said.

On global economic shocks, the ministry highlighted India’s resilience to events such as the global financial crisis, COVID-19 and geopolitical tensions such as the Russo-Ukraine war, stressing that these crises have equally affected the global economy. It said India’s current debt level remains below 2002 in a cross-country comparison, illustrating the country’s relative stability.

(With inputs from PTI)

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Posted: 23 Dec 2023, 11:42 IST

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