India’s public debt level is among the highest in emerging economies with a quantitative easing programme underway, while its debt affordability is among the weakest, Moody’s Investors Service said on Wednesday.
“With the exception of Chile, most of the 11 emerging markets have weak government effectiveness, suggesting potential risks executing fiscal reforms or consolidation plans,” Moody’s said.
“Debt affordability varies widely, with Ghana and India [rated Baa3 negative] weakest. Across the 11 emerging markets, India, South Africa and Ghana have the highest public debt and weakest debt affordability,” the agency added.
“The Reserve Bank of India’s programme aims to stabilise the domestic bond market,” the report titled, ‘Quantitative easing programs are largely positive, but risks vary across economies’, noted.
“While the bank does not operate in the primary market, dividend payments and transfers of excess reserves to the government fund part of the budget deficit,” the report said.
“The bank targets buying more than Rs. 3 trillion [$41.3 billion] of government bonds this fiscal year, having purchased Rs. 3.1 trillion bonds in the previous fiscal year,” Moody’s added in the report. “Most economies’ debt burdens will rise before they stabilise over the next few years,” it said.
Depending on recovery prospects and future debt servicing costs, high debt levels may become unsustainable for the more vulnerable economies,” the report warned.
Most economies’ debt burdens will rise before they stabilise over the next few years