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Home > News > World News > Article > India likely to have stable debt to GDP ratio going forward says IMF official

India likely to have stable debt-to-GDP ratio going forward, says IMF official

Updated on: 12 April,2023 05:34 PM IST  |  Washington
PTI |

According to Paolo Mauro, Deputy Director of the IMF Fiscal Affairs Department, there will be a gradual resumption of the rise in the global public debt-to-GDP ratio in the medium-term

India likely to have stable debt-to-GDP ratio going forward, says IMF official

Representative image. Pic/Istock

India is expected to have a stable debt-to-GDP ratio going forward, a senior official from the International Monetary Fund said on Wednesday and recommended rationalization and simplification of Goods and Services Tax (GST).


According to Paolo Mauro, Deputy Director of the IMF Fiscal Affairs Department, there will be a gradual resumption of the rise in the global public debt-to-GDP ratio in the medium-term.


"Our baseline projection is for the global public debt-to-GDP ratio to reach 100 per cent again by 2028. It is going to take a few years, but that seems to be the direction of travel," Mauro told PTI in an interview.


In 2020 there were massive interventions on the part of governments around the world to support people and firms. That implied a lot of spending and a big rise in government debts.

Also Read: China's GDP falls to three per cent in 2022, second lowest in 50 years

"We reached the peak at the end of 2020 of a 100 per cent when it comes to the ratio of public debt-to-GDP. In subsequent years there was a recovery and globally at the end of 2022, the debt-to-GDP ratio was 92 per cent.

The situation has changed because at the peak of the pandemic, both central banks and governments were very focused on supporting people, supporting firms, avoiding an economic implosion, avoiding deflation, right now they are in a completely different situation where inflation is high and the economic activity is certainly much more buoyant in that context.

In China the IMF projects a sizable increase in the debt ratio because the pace of economic growth may be a little bit slower than in previous years, partly because of aging of the population.

Likewise in the United States and to a lesser extent in the United Kingdom in Japan, in France, there is also going to be some increase in debt ratios.

"In countries like India, we project the stable debt ratio going forward. Brazil we see an increase as well. In the case of many, low income countries and smaller advanced economies, we project the decline in the debt ratio and that would include Germany or Italy and others," he said.

Responding to a question on India, Mauro said, this year's Union Budget appropriately reduces the deficit and appropriately emphasizes infrastructure.

"The fact that the deficit is being reduced helps the Central Bank. Another good feature is that there is a reduction in subsidies that is coming from the unwinding of those exceptional measures that were taken during the pandemic," he said.

Going forward he recommended rationalization and simplification of GST.

"We are not talking about an overhaul, but we're talking about maybe rationalizing it a little bit. There are many items that are subject to preferential GST treatment, and lots of different rates. And so just simplifying it a little bit would be helpful," Mauro said.

On the fuel excise tax cuts that were introduced in early 2022, he said "it would be appropriate to reverse those again, because at some point, you don't want to be giving these generalized subsidies to everybody. It's important to support those who are truly needy but now not everybody."

The other thing is to broaden the base for the corporate income tax and the personal income tax, he said, cautioning that fiscal costs might emerge in the future.

"There are some companies in particular, in the electricity distribution sector that given everything that has happened in energy markets, may be under difficulties, and therefore there may at some point be the need for intervention on the part of the government," Mauro said. 

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