Context:
Annual International Debt Report (IDR) 2024 released.
International Debt Report:
- Published by – World Bank
- Purpose – Highlights key trends in global debt, particularly for low- and middle-income countries.
Highlights of International Debt Report (IDR) 2024:
- Rising Debt Levels – Total external debt for Low- and Middle-Income Countries (LMICs) reached USD 8.8 trillion by the end of 2023, an 8% increase since 2020.
- Rising Debt Servicing Costs – Interest payments by LMICs increased by 33%, reaching USD 406 billion.
- This divert resources from essential sectors like health, education, and environmental sustainability, worsening development challenges
- Rising Borrowing Costs –
- Interest rates doubled to over 4% on loans from official creditors in 2023.
- Interest rates from private creditors rose to 6%, the highest in 15 years.
- Role of Private and Official Creditors:
- Private creditors reduced lending to IDA nations (International Development Association, part of the World Bank that helps the world’s low-income countries), leading to USD 13 billion more paid in debt servicing than new loans received.
- Multilateral lenders provided USD 51 billion more in loans than they collected in debt payments.
India’s Debt Situation:
- India’s external debt increased by USD 31 billion, reaching USD 646.79 billion in 2023.
- Interest payments rose from USD 15.08 billion in 2022 to USD 22.54 billion in 2023.
- Debt Composition – Long-term debt increased by 7%, while short-term debt saw a slight decline.
- The debt servicing ratio as a percentage of exports rose to 10%.
Source: Business Standard
Previous Year Question
Consider the following statements:
1. Most of India’s external debt is owed by governmental entities.
2. All of India’s external debt is denominated in US dollars.
Which of the statements given above is/are correct?
[UPSC Civil Service Exam – 2019 Prelims]
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Answer: (d)
Explanation:
Commercial borrowings remained the largest component of external debt in India, with a share of 38.1 per cent. Statement 1 is not correct.
Statement 2 is not correct. US dollar denominated debt remained the largest component of India’s external debt, but all of India’s external debt is not denominated in US dollars.
