It enables them to assess a country’s debt-paying capacity. A high ratio, such as 101 percent, indicates that a country is unable to repay its debt. A ratio of 100 percent shows that there is just enough output to pay debts, whereas a lower ratio suggests that there is enough economic output to cover debts.
What is the debt-to-GDP ratio in India?
The Covid-19 dilemma has resulted in a massive increase of government debt across the globe. India is no different. While financial markets have been tolerant of increased debt levels, rating agencies and investors, particularly in emerging markets, are keeping a close eye on the route to debt sustainability.
In FY21, India’s debt-to-GDP ratio increased to 87.8%. It is expected to fall to 87.4 percent in FY22, with high nominal growth helping to bring it down.
In November 2021, the rating agency confirmed India’s rating at ‘BBB-‘ with a negative outlook, citing rising public debt as a factor in its decision. The rating agency has previously stated that “higher debt levels hinder the government’s ability to respond to shocks and could lead to a crowding out of funding for the private sector.”
Government debt ratios climbed in nearly every sovereign country during the pandemic, Zook added, as governments gave fiscal help to combat the virus. The median ‘BBB’ debt ratio increased from roughly 42% of GDP in 2019 to 60% in 2021, while it is predicted to drop to 55% in 2022.
What is India’s debt in 2021?
The total debt owed by India to foreign creditors is known as its external debt. Debtors can include the Union government, state governments, corporations, and Indian residents. Money due to private commercial banks, foreign governments, and international financial institutions like the International Monetary Fund (IMF) and the World Bank are included in the debt.
India’s external debt data is released on a quarterly basis, with a one-quarter lag. The Reserve Bank of India compiles and publishes statistics for the first two quarters of the calendar year. The Ministry of Finance compiles and publishes data for the previous two quarters. The Indian government also issues an annual debt status report, which includes a full statistical analysis of the country’s external debt situation.
At the end of March 2021, India’s external debt was US$ 570 billion. It increased by $11.6 billion from the end of March 2020 to the end of April 2020. The external debt to GDP ratio climbed from 20.6 percent a year earlier to 21.1 percent at the end of March 2021.
Foreign currency reserves climbed to $579 billion by the end of March 2021, up from $474 billion at the end of March 2020. As a result, the foreign currency reserves as a percentage of external debt increased to 101.1 percent in March 2021, up from 84.9 percent in March 2020.
Why is Japan so in debt?
The Japanese public debt is predicted to be around US$12.20 trillion (1.4 quadrillion yen) as of 2022, or 266 percent of GDP, the largest of any developed country. The Bank of Japan holds 45 percent of this debt.
The collapse of Japan’s asset price bubble in 1991 ushered in a long period of economic stagnation known as the “lost decade,” with real GDP decreasing considerably during the 1990s. As a result, in the early 2000s, the Bank of Japan embarked on a non-traditional strategy of quantitative easing to inject liquidity into the market in order to promote economic growth. By 2013, Japan’s public debt had surpassed one quadrillion yen (US$10.46 trillion), more than twice the country’s yearly gross domestic product and already the world’s highest debt ratio.
Japan’s public debt has continued to climb in response to a number of issues, including the Global Financial Crisis in 2007-08, the Tsunami in 2011, and the COVID-19 epidemic, which began in late 2019 and has consequences for Tokyo’s hosting of the 2020 Summer Olympics. In August 2011, Moody’s downgraded Japan’s long-term sovereign debt rating from Aa2 to Aa3 due to the country’s large deficit and high borrowing levels. The ratings drop was influenced by substantial budget deficits and government debt since the global recession of 2008-09, as well as the Tohoku earthquake and tsunami in March 2011. The Yearbook of the Organisation for Economic Co-operation and Development (OECD) noted in 2012 that Japan’s “debt surged above 200 percent of GDP partially as a result of the devastating earthquake and subsequent reconstruction efforts.” Because of the growing debt, former Prime Minister Naoto Kan labeled the issue “urgent.”
How much debt does Pakistan have?
At the end of September 2021, Pakistan’s overall debt and obligations had reached a new high of PKR 50.5 trillion, an increase of PKR 20.7 trillion over the previous 39 months. According to the Express Tribune, the country’s total debt has increased by about 70%.
Which Indian state is the most in debt?
In reality, in FY21, twenty-seven out of thirty-one states and UTs saw their debt ratio rise by 0.5 to 7.2 percentage points year over year, as states borrowed more to pay routine expenses as well as Covid firefighting, despite a steep drop in income.
The debt-to-GDP ratio was aggravated by the fact that, although the numerator (liabilities) climbed rapidly in FY21, the denominator (nominal GDP) declined sharply. In FY21, the combined budget deficit of states reached a 17-year high of 4.2 percent, while nominal GDP decreased by 3%.
Despite this, the N K Singh-led Fiscal Responsibility and Budget Management (FRBM) Committee recommended that several states, like as Maharashtra (20%) and Gujarat (23%), maintain reasonable debt-to-GDP ratios in FY21.
Punjab topped the list of states with the highest debt-to-GDP ratio in FY21, at 49.1 percent, up 6.6 percentage points from the previous year, according to the latest Reserve Bank of India report on state finances. This is the state’s worst debt ratio since 1991; the high debt is the result of years of budgetary profligacy, including farm loan forgiveness and cheap electricity for vast segments of the population, among other things.
As a result, Punjab’s yearly debt payment obligations are nearly equal to its annual gross borrowings, leaving limited room for asset building. The state has regularly underperformed in terms of capital spending expectations, achieving only 42% of the target in FY21 and 10% in FY20.
Rajasthan’s debt situation also worsened in FY21, with the state’s total liabilities climbing 7.2 percentage points in a year to 42.6 percent. From around 47 percent in FY05, the state’s debt-to-GDP ratio was nearly halved to 24 percent in FY15. The UDAY system for power distribution corporations, which moved the majority of discoms’ debt to the state’s budget, was one reason for the constant growth in the ratio following that.
All states’ liabilities were on the decline, with debt to GDP falling to 21.7 percent in FY15 from 31.3 percent in FY05. After the adoption of UDAY, which was implemented by all states except Odisha, West Bengal, and Delhi, it climbed steadily from FY16 forward.
In FY21, the Centre’s growing deficit pushed its debt-to-GDP ratio to a 14-year high of almost 59 percent. Given that the Centre’s debt load is likely to reach a 16-year high of over 62 percent of GDP by the end of this fiscal year, the general government debt is expected to reach 90 percent of GDP, the highest level since economic liberalisation in FY91.
“Any increase in growth (nominal GDP is expected to grow 17.6% in FY22) will reduce the debt-to-GDP ratio. If the Centre and the states implement the same macroeconomic fiscal framework as the previous budget (more growth-inducing capex), the total debt level might drop to roughly 80% in about five years. Between FY04 and FY10, it happened,” stated N R Bhanumurthy, vice-chancellor of the Bengaluru Dr B R Ambedkar School of Economics University.
In the aftermath of the Asian financial crisis, when GDP slowed to 5.3 percent on average between FY98 and FY03, the government implemented an expansionary fiscal strategy focused on infrastructure expenditure. High growth during this time period reduced general government debt from record highs of 83 percent of GDP in FY04 to roughly 70 percent in FY10.
Even if reducing states’ debt to 20 percent of GDP would be a daunting undertaking, Bhanumurthy noted that reducing debt to 27-28 percent of GDP in the next several years would not be problematic.
The FRBM group proposed a ceiling of 60 percent of GDP for general government debt (including central and state) by FY23 in 2017. Within this overall restriction, the Centre set a 40 percent cap and the states set a 20 percent ceiling.
According to Icra, the states’ fiscal deficit would be at 3.3 percent in FY22, while the Centre’s fiscal deficit will likely exceed the 6.8 percent objective due to a shortfall in disinvestment receipts, and will be around 7.1 percent. In the base scenario for FY23, the states’ budget deficit is estimated to be 3.5 percent, while the federal deficit is estimated to be 5.8 percent.
“Despite the remaining uncertainty, we believe that the Union Budget for FY23 should set aside monies for capital and infrastructure spending that can be realistically absorbed. Such investments will assist to fuel the investment cycle, create jobs, and boost domestic demand. Simultaneously, rationalizing Centrally Sponsored Schemes and Central Sector Schemes would increase fiscal space and improve the quality/efficiency of expenditure, according to Aditi Nayar, ICRA’s chief economist.
Is India sunk in debt?
According to a recent World Economic Forum report, India’s debt has increased (read more about it here). According to the Reserve Bank of India (RBI), household debt in India reached 37.1 percent of GDP in the second quarter of 2020. As of March 2021, the total debt owned by families was estimated to be over Rs 43.5 trillion. The state of government and business debt has also deteriorated. In 2020-21, India’s national debt reached around 89.6% of GDP, while government debt reached 70% of GDP. The amount of debt held by corporations has increased to 47%.
If you’re in debt, the first step to getting out of it is to admit that you have a problem. Begin by reviewing your financial situation and generating a list of any outstanding loans. This will assist you in better strategizing and paying off your debt faster.
How much debt does Sri Lanka have?
Sri Lanka’s state debt is expected to climb from 94 percent of GDP in 2019 to 119 percent of GDP in 2021, according to projections.
“For the government, it’s all about weighing the benefits and drawbacks of defaulting on the debt,” Holmes said. “Definitely, the cost of defaulting is definitely cheaper than the cost of going for Sri Lanka,” he said, adding that policymakers would be better off “biting the bullet.”
Analysts believe the country needs to restructure its debt or seek rescue from the International Monetary Fund.
“We believe the Sri Lankan government will eventually have to go to the IMF,” Citi analysts wrote in a note. “However, we cannot rule out the chance of a default before any arrangement with the IMF is finalized.”
Which country has the most debt?
Venezuela has the highest debt-to-GDP ratio in the world as of December 2020, by a wide margin. Venezuela may have the world’s greatest oil reserves, but the state-owned oil corporation is thought to be poorly managed, and the country’s GDP has fallen in recent years. Simultaneously, Venezuela has taken out large loans, increasing its debt burden, and President Nicolas Maduro has tried dubious measures to curb the country’s spiraling inflation.
