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India using 'right policies' to lower high debt level, says IMF

India has "quite a high" debt to GDP ratio, but New Delhi is trying to lower it using "the right policies", the International Monetary Fund has said.   

Reported by: Agencies, Washington [ Published on: April 19, 2018 7:48 IST ]
India using 'right policies' to lower high debt level, says

India using 'right policies' to lower high debt level, says IMF

India has "quite a high" debt to GDP ratio, but New Delhi is trying to lower it using "the right policies", the International Monetary Fund has said. 

India's general government debt remained relatively high, at 70 per cent of the GDP in 2017, Abdel Senhadji, Deputy Director, IMF Fiscal Affairs Department, told reporters at a news conference here. 

"The debt level is relatively high (in India), but the authorities are planning to bring it down over the medium term with the right policies," Senhadji said.

In fiscal year 2017-18, India is planning to continue with the consolidation in the current fiscal year and over the medium term, the top IMF official said. 

"They are, in fact, targeting their federal deficit of three percent over the medium term, and they are targeting also a debt ratio of 40 per cent over the medium term at the federal level, which corresponds to about 60 per cent at the general government level. And we believe that those targets are appropriate," the IMF official said.

The IMF also warned that an unexpected rise in the US inflation, resulting from the aggressive fiscal stimulus launched by President Donald Trump, would cause significant global financial tensions forcing central banks around the world to respond firmly.

"Financial vulnerabilities, which have accumulated during years of extremely low rates and volatility, could make the road ahead bumpy and could put growth at risk," the IMF said in its "Global Financial Stability Report" issued twice a year.

The IMF also said that a hike in inflation in the US could lead the Federal Reserve to raise interest rates faster than has been expected to date, Efe reported.

"What we are flagging is that at some point markets see shocks in inflation that raise inflation uncertainty and when that happens, that is associated with a rise in long-term interest rates and that might lead to a tightening in financial conditions," said Tobias Adrian, the director for the IMF's monetary and capital markets department.

The so-called "emerging markets" would be particularly vulnerable to "spillovers" if that happens, the report warned, and Adrian said that central banks could respond to any unforeseen hike in US inflation by reacting more firmly than expected.

Last December, the US Congress approved an aggressive plan of tax cuts for corporations and, to a lesser degree, for the general public, to which shortly thereafter a budget bill that significantly raised defense spending was added.

In addition, the Trump administration is pushing a costly plan of infrastructure investments in Congress.

Economists have warned that this fiscal stimulus could overheat the economy and cause inflation to spike, which would lead the Fed to accelerate its monetary adjustment schedule.

The Fed raised interest rates to between 1.5-1.75 per cent recently and is forecasting two additional hikes this year.

The release of the report coincides with the spring meeting of the IMF and the World Bank this week in Washington, to be attended by the economy ministers and central bank chiefs of the 189 member nations.

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