Context:
Data released by the Reserve Bank of India shows that India’s external debt at end-March 2023 rose to $624.7 billion from the year-earlier period but the external debt-to-GDP ratio slid to 18.9% at end-March from 20% a year earlier.
Debt-to-GDP ratio:
- It is the metric comparing a country’s public debt to its Gross Domestic Product (GDP) often expressed as a percentage.
- By comparing what a country owes (debt) with what it produces (GDP), the debt-to-GDP ratio reliably indicates a particular country’s ability to pay back its debts.
What is Sustainable Debt-to-GDP Ratio?
According to IMF, “a country can achieve sustainable external debt if its future and current external debt service obligations are met in full, without accumulating more debt and without compromising growth”.
About Special Drawing Right:
- The SDR is an international reserve asset created by the IMF.
- Objective – to supplement its member countries’ official reserves.
- Created in 1969.
- It is neither a currency nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. SDRs can be exchanged for these currencies.
- It serves as the unit of account of the IMF and some other international organizations.
- Determination of currency value of the SDR – Summing the values in US dollars, based on market exchange rates, of a SDR basket of currencies.
- SDR basket of currencies – US dollar, Euro, Japanese yen, pound sterling and the Chinese renminbi (included in 2016).
- Quota (the amount contributed to the IMF) of a country is denominated in SDRs.
- Members’ voting power is related directly to their quotas.
- It is allocated to IMF member countries in proportion to their relative share in the IMF.
- Presently, India holds 2.75% of SDR quota, and 2.63% of votes in the IMF.
About International Monetary Fund:
- Genesis: Founded at the Bretton Woods conference in 1944.
- Countries must first join the IMF to be eligible to join the World Bank Group.
- Headquarters – Washington DC
- India is a member.
- 3 critical missions:
- Furthering international monetary cooperation
- Encouraging the expansion of trade and economic growth
- Discouraging policies that would harm prosperity.
- Connections: It cooperates closely with other groups, including G20, and supports the G20’s efforts to sustain international economic cooperation through its mutual assessment process.
- Key reports: World Economic Outlook and Global Financial Stability Report.
Source: The Hindu