Friday, March 1, 2024

IMF warns India that its debt may exceed 100% of GDP, Union disagrees

The International Monetary Fund warned India on Tuesday that its government debt may exceed 100% of its gross domestic product, or GDP, in the medium term.

The global body also cautioned that long-term debt sustainability risks are high due to the significant investment required to meet India’s climate change mitigation targets, reported Business Standard.

However, the Union government has disagreed with the agency’s assessment. The risks from sovereign debt are extremely limited as it is predominantly denominated in domestic currency, argued India.

“Long-term risks are high because considerable investment is required to reach India’s climate change mitigation targets and improve resilience to climate stresses and natural disasters. This suggests that new and preferably concessional sources of financing are needed, as well as greater private sector investment and carbon pricing or equivalent mechanism,” the IMF said in its annual Article IV consultation report.

The IMF said that risks to India’s economic growth outlook are balanced. It raised the medium-term potential growth rate to 6.3% from the earlier estimate of 6% on the grounds of “larger-than-expected capital spending and higher employment”.

India, however, told the agency that it is estimating a growth rate of 7% to 8%.

IMF said: “A sharp global growth slowdown in the near term would affect India through trade and financial channels. Further global supply disruptions could cause recurrent commodity price volatility, increasing fiscal pressures for India.”

The agency added: “Domestically, weather shocks could reignite inflationary pressures and prompt further food export restrictions. On the upside, stronger than expected consumer demand and private investment would raise growth.”

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