Don’t misconstrue IMF’s debt outlook, says Centre

The IMF’s Directors had recommended “ambitious medium-term consolidation efforts given (India’s) elevated public debt levels and contingent liability risks”.  
| Photo Credit: Reuters

The Union Finance Ministry on Friday sought to dispel “certain” factually incorrect “presumptions” being made about India’s indebtedness levels from a scenario-based assessment by the International Monetary Fund (IMF) that warned government debt could hit 100% of GDP by 2027-28 under adverse circumstances.

“In the light of the IMF’s latest Article IV consultations with India, certain presumptions have been made taking into account possible scenarios that does not reflect factual position,” the Ministry said.

Noting that similar IMF reports for other countries show much higher extreme scenarios for them, the Ministry stressed that any interpretation that the report implies that general government debt would exceed 100% is misconstrued.

Stressing that its statement is not a critique of the IMF’s assessment, the Ministry said this was a clarification of factual position and not a “rebuttal” to the IMF, but “rather an effort to arrest misinterpretation/misuse of the comments in the IMF document”.

General government debt includes debt of both the Centre and the States, and had dipped “steeply” from about 88% in 2020-21 to about 81% in 2022-23, the Ministry said, sharing a cross-country comparison on debt levels to assert that “India has done relatively well and is still below the debt level of 2002”.

The IMF’s Executive Board said on Monday it had concluded its annual consultation with India, and its Directors had recommended “ambitious medium-term consolidation efforts given elevated public debt levels and contingent liability risks”.

“While the budget deficit has eased, public debt remains elevated and fiscal buffers need to be rebuilt”, the IMF said, adding that the Board encouraged “authorities to put in place a sound medium-term fiscal framework to promote transparency and accountability and align policies with India’s development goals”.

“Among the various favourable and unfavourable scenarios given by the IMF, under one extreme possibility, like once-in-a-century COVID-19, it has been stated that the General Government’s debt could be ‘100% of debt-to-GDP ratio’ under adverse shocks by 2027-28. It talks only of a worst-case scenario and is not fait accompli,” the Ministry said.

“The corresponding figures of ‘worst-case’ scenarios for the U.S., U.K. and China are about 160%, 140%, and 200%, respectively, which is far worse compared to 100% for India… It is also noteworthy that the same report indicates that under favourable circumstances, the General Government Debt-to-GDP ratio may decline to below 70% in the same period,” it emphasised.

“The shocks experienced this century by India were global in nature, e.g., the global financial crisis, Taper Tantrum, COVID-19, Russia-Ukraine War, etc. These shocks uniformly affected the global economy and barely few countries remained unaffected. Therefore, any adverse global shock or extreme event is expected to unidirectionally impact all the economies in an interconnected and globalised world,” the statement said.

The IMF, under Article IV of its Articles of Agreement, holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

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