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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.
The Ministry stressed that any interpretation that the report implies that general government debt would exceed 100% is misconstrued.
IMF- International Monitory Fund
The IMF is a major financial agency of the United Nations, and an international financial institution funded by 190 member countries, with headquarters in Washington, D.C.
It is regarded as the global lender of last resort to national governments, and a leading supporter of exchange-rate stability.
The IMF was established in 1944 at the Bretton Woods Conference, with the primary goals of promoting international monetary cooperation,
stabilizing exchange rates, and fostering balanced economic growth.
The IMF's role has evolved to include providing financial assistance to countries facing economic crises, monitoring global economic trends, and offering policy advice to member countries.
The IMF's activities are funded by contributions from its member countries, which are determined by a complex formula based on their quota, or share of the global economy.
The IMF's resources are then used to provide loans to countries facing balance of payments problems, or temporary shortages of foreign currency.
These loans are typically conditional on the recipient country implementing economic reforms aimed at restoring stability and growth.
In addition to providing financial assistance, the IMF also conducts surveillance of the global economy and provides policy advice to its member countries.
The IMF's surveillance role involves reviewing the economic and financial policies of member countries, and identifying potential risks to stability.
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.
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.
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