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Topic : Global Public Debt at a Record High

GS-3 Mains  : Economy

Revision Notes

Surging Debt Levels:

  • Global public debt reached a historic peak of $97 trillion in 2023 (UNCTAD report).
  • This is a significant increase from 2022, highlighting a growing burden on global prosperity.

Impact on Developing Countries:

  • The number of African countries with high debt-to-GDP ratios (above 60%) has risen sharply (from 6 to 27) between 2013 and 2023.
  • Developing nations face a double whammy:
    • Increased Interest Payments: They paid a staggering $847 billion in net interest in 2023, a 26% rise from 2021.
    • Crowding Out Essential Spending: In 3.3 billion people’s countries, interest payments exceed spending on education and health combined.
  • The share of public debt held by developing countries has climbed to 30% globally (2023), compared to 16% in 2010.
  • Reliance on private creditors has increased, making debt restructuring more complex.

India’s Public Debt:

  • India’s debt-to-GDP ratio has fluctuated but remains high (around 81% in recent years).
  • The Fiscal Responsibility and Budget Management (FRBM) Act aimed to bring it down to 60% by 2024-25, but this target seems unlikely.
  • The IMF projects India’s debt could reach 100% of GDP under adverse circumstances by 2028.

Concerns of Rising Debt:

  • Hinders Climate Action: Developing countries need to invest more in climate change solutions, but rising debt payments create a financial squeeze.
  • Debt Crises More Expensive: The growing complexity of creditors makes restructuring debt more difficult and costly.
  • Unequal Financial Architecture: Borrowing from private sources is expensive compared to concessional loans from multilateral institutions.
  • Cuts in Public Services: High debt can force governments to reduce spending on healthcare, education, and social welfare, worsening inequality.

Call to Action:

  • The UNCTAD report urges revamping the global financial system to support the UN’s Sustainable Development Goals (SDGs).
  • Key proposals include:
    • Greater Inclusion: Enhance developing country participation in global financial governance.
    • Debt Management: Create effective mechanisms to tackle rising debt costs and prevent debt distress.
    • Contingency Finance: Provide greater financial support during crises to avoid excessive borrowing.
    • Scaling Up Financing: Mobilize resources from multilateral development banks and private investors for affordable, long-term financing.

What is Public Debt?

  • Public debt is the total amount borrowed by the government to finance its development and operational needs.
  • It includes liabilities of both the central and state governments.
  • The Indian government categorizes its debt based on the source of funds (e.g., government securities, treasury bills, external loans).


Source : https://www.thehindu.com/business/Economy/netherlands-emerges-as-indias-3rd-largest-export-destination-in-2023-24/article68252728.ece#:~:text=The%20Netherlands%20has%20emerged%20as,to%20the%20Commerce%20Ministry%20data   

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