India Asserts IMF Debt Report Is Misconstrued, Represents Extreme Case Not Reality

The Union Finance Ministry on Friday (23 December) sought to dispel “certain” factually incorrect “presumptions” being made about India’s debt levels.

These assumptions stemmed from a scenario-based assessment by the International Monetary Fund (IMF) that warned government debt could hit 100 per cent 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 emphasised that the interpretation suggesting the IMF report implies a general government debt exceeding 100 per cent is a misinterpretation.

This is particularly evident when similar IMF reports for other nations depict much more extreme scenarios, according to the ministry.

The ministry clarified that its statement is not intended as 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”.

"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 per cent of debt to GDP ratio” under adverse shocks by FY2028. It talks only of a worst-case scenario and is not fait accompli," the ministry said.

General government debt includes debt of both the Centre and the States, and has steeply declined from about 88 per cent in FY 2020-21 to about 81 per cent in 2022-23, according to the ministry.

"Similar IMF Reports for other countries show much higher extreme scenarios for them. The corresponding figures of ‘worst-case’ scenarios for the USA, UK and China are about 160, 140, and 200 per cent, respectively, which is far worse compared to 100 per cent for India," the ministry said.

The ministry also highlighted that the same IMF report indicates that under favourable circumstances, the General Government Debt to GDP ratio may decline to below 70 per cent in the same period.

"Therefore, any interpretation that the report implies that General Government debt would exceed 100% of GDP in the medium term is misconstrued," it added.

On Monday, the Executive Board of the International Monetary Fund (IMF) announced the completion of its yearly consultation with India. The Directors of the board suggested “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”.

“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 ministry statement said.