Facts for Prelims (FFP)
Source: WB
Context: The World Bank released the International Debt Report (IDR).
What are debts?
Debt refers to an obligation or financial liability that one party owes to another. It is typically in the form of borrowed funds that need to be repaid over time, often with interest.
- India’s total debt is around 81%, but most of it is domestic debt. India’s external debt is around 18.6% (around USD 624 billion at the end of March 2023), as per the RBI data.
Important Points:
- Public and publicly guaranteed (PPG) debt service payments by Low and Middle-Income Countries (LMICs) reached over US$443 billion in 2022, posing a risk to their financial sustainability.
- Rising interest rates and unfavourable exchange rate movements could make servicing external debt burdensome.
- India’s debt service was 2% of the GNI in 2022.
- Impact: The debt servicing may crowd out spending on other development priorities.
- Due to a tighter monetary policy in advanced economies, there was a net outflow of over US$127 billion from LMICs as investors sought attractive returns in US and European bond
- The report recommends debt buybacks and exchanges, and exploring debt-for-nature swaps to combine debt relief with funding green projects.
About IDR:
Formerly known as International Debt Statistics (IDS), is an annual publication by the World Bank, now in its fiftieth year. It focuses on external debt statistics and analysis for 122 low- and middle-income countries participating in the World Bank Debt Reporting System.
Also in the News:
Source: IMF
The IMF’s annual Article IV consultation report warns India, reclassifying its de facto exchange rate regime from “floating” to a “stabilized arrangement” until October 2023. This classification occurs when the exchange rate remains within a 2% band due to official action.
The report suggests India’s General Government Debt (GGD) might exceed 100% of GDP in the medium term, contrasting with last year’s 80.9%. The Fiscal Responsibility and Budget Management (Amendment) Rules, 2018 aims to limit GGD at 60% of GDP by 2024-25.
The IMF expressed concerns about India’s sovereign risk, unsecured retail loans, potential inflation, and financial sector stress. The Indian government has countered, citing digitalization’s positive impact on credit growth and asserting the robustness of the banking system.
