IMF projection of government debt to exceed 100% of GDP by FY28 ‘wrong’: Finance Ministry


India on Friday said the International Monetary Fund’s projection that public debt will exceed 100 percent of the country’s GDP by 2027-28 is “misconstrued”.

In a statement, the finance ministry said several other countries are expected to fare worse than India on the debt front.

For example, the corresponding “worst-case” scenario numbers for the US, UK and China are about 160, 140 and 200 percent, respectively, much worse than India’s 100 percent, the statement said.

“It is also noteworthy that the same report states 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 suggests that public debt would exceed 100 percent of GDP in the medium term is misconstrued,” the ministry said in its rebuttal to the IMF report after the annual Article IV consultation with Indian authorities.

The ministry further said that public debt (including both state and central) has come down sharply from around 88 per cent in FY 2020-21 to around 81 per cent in FY 2022-23 and the Center is on track to achieve the set fiscal level. consolidation target of reducing fiscal deficit below 4.5 percent of GDP by fiscal year 2025-26.

“States have also individually enacted their own 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,” he said.

According to the International Monetary Fund’s Article IV consultation report earlier this week, the budget deficit has narrowed, public debt remains elevated and fiscal buffers need to be rebuilt.

The IMF reviews the country’s current and medium-term economic policies and outlook.

Looking ahead, India’s increased public debt calls for additional revenue and expenditure measures, such as further GST and subsidy reforms, while continuing to prioritize public investment and targeted support for the vulnerable, the report said.

Meanwhile, defending India’s position, the finance ministry said in a statement, it is important to note that public debt in India is overwhelmingly denominated in rupees, with external borrowing from bilateral and multilateral sources contributing a minimal amount.

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

The upheavals that India has experienced in this century have been global in nature, such as the global financial crisis, falling temper tantrum, Covid and the Russia-Ukraine war, and these upheavals have uniformly affected the global economy, leaving hardly a few countries untouched, the statement said.

Therefore, the ministry said, any adverse global shock or extreme event is expected to have a unidirectional impact on all economies in an interconnected and globalized world.

A cross-country comparison shows that India has done relatively well and is still below 2002 debt levels, he added.

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