India’s public debt ratio will rise to 90% due to Covid-19 (IMF)


India’s public debt ratio, which has remained remarkably stable at around 70 percent of GDP since 1991, is expected to jump 17 percentage points to almost 90 percent due to the increase in public spending due to the COVID-19, the IMF said on Wednesday. .

“In our projections, the increase in public spending, in response to COVID-19, and the decline in tax revenues and economic activity, will cause public debt to jump by 17 percentage points to almost 90% of GDP,” Vitor Gaspar, director of the IMF’s Fiscal Affairs Department told PTI.

“Going forward, it is expected to stabilize in 2021, before declining slowly until the end of the projection period, in 2025. Overall, the structure of public debt in India is close to the norm in the world, ”he said.

According to Gaspar, India’s public debt ratio has been remarkably stable since 1991. Interestingly, the debt ratio has remained stable at around 70 percent of GDP over the past decade, has t -he declares.

Responding to a question about his assessment of India’s fiscal situation, Gasper said India has been an important source of growth in the world since the economic liberalization reforms of 1991.

Real GDP growth averaged 6.5% between 1991 and 2019, and real GDP per capita quadrupled during this period. This impressive growth performance has helped lift millions of people out of extreme poverty, he said.

The extreme poverty rate, measured as the proportion of people whose income is less than $ 1.90 per day at purchasing power parity (the international poverty line), fell from 45% in 1993 to 13% in 2015 (date of the last full assessment of the World Bank extrapolation available, the last full assessment, based on household surveys, dates back to 2011), he said.

India has met the millennium development goal of halving poverty by 2015 (from its 1990 level), he said.

“India has made amazing progress in other areas. Schooling is almost universal for primary school. Infant mortality rates have been halved since 2000. Access to water and sanitation, electricity and roads has improved considerably, ”the IMF official said.

According to Gasper, in the short term, additional fiscal measures can and should be deployed as needed to support the poor and vulnerable.

“This should be accompanied by a credible medium-term fiscal consolidation plan that can boost market confidence and structural reforms that boost India’s growth potential,” he added.

“Going forward, public finances should continue to support growth and development in India. The effects of COVID-19 on health, education, poverty and nutrition make progress towards the Sustainable Development Goals even more urgent. Macroeconomic and financial stability are important necessary conditions for sustainable development, he said.

Responding to a question about handling the COVID-19 crisis, the IMF official said comparisons between countries are inherently complex, especially in this highly uncertain and volatile pandemic environment.

Each country’s response reflected their pre-COVID positions, the capacity of their institutions, and many other factors that may be unique to each country, he noted.

“In China, the authorities have reacted strongly to the epidemic. COVID-19 appears to be contained. Fiscal policy initially focused on improving the public health system, providing financial support to the most affected households and businesses, and increasing investment in infrastructure, he said. .

The economy quickly returned to growth. This has been possible in part thanks to substantial monetary, financial and fiscal support. But growth is unbalanced and the pandemic has exposed old structural challenges by dispersing social safety nets and exacerbating financial vulnerabilities, he added.

“In order to facilitate the rebalancing of the economy, fiscal policy should shift its focus from infrastructure to supporting households and green investments. This would lessen the risk of scars and make growth more resilient,” Gasper said.

“Structural fiscal reforms would also make political support more effective. Important examples include improving the macro-fiscal framework and intergovernmental coordination while leveraging digital technologies to provide support to vulnerable groups, he said.

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John A. Bogar

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