IMF debt outlook UPSC NOTE

 Why in News

  • 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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Learnerz IAS | Concept oriented UPSC Classes in Malayalam: IMF debt outlook UPSC NOTE
IMF debt outlook UPSC NOTE
Learnerz IAS | Concept oriented UPSC Classes in Malayalam
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