On Tuesday, Investors Service of Moody said that by 2021, India will be among those large emerging market sovereigns to have the highest debt.
It said that coronavirus pandemic has reduced the growth and fiscal dynamics thus leaving most large emerging market sovereigns with higher burdens of debt in the next few years.
Moody’s said that there will be a rise of the government debt in the large emerging market by almost ten percentage points of Gross Domestic Product (GDP) on an average by the end of 2021 from 2019 levels. This rise will be majorly due to the wider primary deficits, although some are likely to see higher interest payments contributing to higher debt, said Moody.
“Debt burdens in Brazil, India and South Africa will rise to among the highest across the large emerging market sovereigns by 2021,” Moody’s said.
Moody which is the US-based rating agency said that challenges like medium-term growth and fiscal have downside risks because some of these nations have economic risks and potential revenue shortfalls beyond the immediate shock, in view of their exposure to tourism, commodities, and sectors that are exposed to lasting changes in weak global demand, behaviours, and persistently weaker productivity growth.
“Fragile financial systems and/or contingent liabilities compound this risk for India, Mexico, South Africa and Turkey,” Moody’s noted.
It stated that contingent liability risks to the sovereign are raised in India with the increased stress within the financial system, among banks and non-bank financial companies.
The agency said, “Despite steps toward the resolution of high non-performing loans, the banking system continues to suffer from weak asset quality, and low loan-loss coverage and capital adequacy. This is especially the case for state-owned banks, which account for around 70% of total banking system assets.”
Lingering fragilities in the sector are likely to be compounded by a prolonged period of subdued economic activity compared to pre-coronavirus levels, it added.