WION New Delhi, Delhi, India
Jan 10, 2019, 10.17 PM
Senior Economist- World Bank Prospects Group Patrick Kirby said that high levels of public debt, in general, could be one of the biggest risk being faced by the South Asian Region's economic growth.
Speaking exclusively to WION he also added that India would still be the leading growing economy in coming years with GDP growth estimated at 7.3% for 2018-19.
On being asked whether China is adding to the Global Debt Crisis by lending loans to low-income countries and then influencing their policy decisions favouring China, Patrick Kirby further added that debt vulnerabilities in low-income countries have increased substantially in recent years. As a result, in most low-income countries, interest payments are absorbing an increasing proportion of government revenues.
In a recent report conducted by The Center for Global Development, a non-profit research organization, which analyzed debt to China that will be incurred by nations participating in the current Belt and Road investment plan. Eight nations will find themselves vulnerable to above-average debt: Djibouti, Kyrgyzstan, Laos, the Maldives, Mongolia, Montenegro, Pakistan, and Tajikistan.
In another report by The Center for Global Development in early 2018 on Examining the Debt Implications of the Belt and Road Initiative from a Policy Perspective stated that countries like Mongolia, Kyrgyzstan, Tajikistan, Pakistan etc are in the High-Risk Category because of BRI Project. While Sri Lanka, Maldives etc are under significant threat because of the BRI Loans.
Here are the excerpts from the exclusive conversation with Patrick Kirby:
WION: The primary reason for India's growth in GDP in the World Banks forecast?
Patrick Kirby: India’s growth accelerated to an estimated 7.3 per cent in FY2018/19 as economic activity continued to recover with strong domestic demand. While investment continued to strengthen amid GST harmonization and a rebound of credit growth, consumption remained the major contributor to growth.
India’s GDP is forecast to grow by 7.3 per cent in FY2018/19 and 7.5 per cent thereafter, in line with June forecasts. Private consumption is projected to remain robust and investment growth is expected to continue as the benefits of recent policy reforms begin to materialize and credit rebounds. Strong domestic demand is envisioned to widen the current account deficit to 2.6 per cent of GDP next year. Inflation is projected to rise somewhat above the midpoint of the Reserve Bank of India’s target range of 2 to 6 per cent, mainly owing to energy and food prices.
WION: What is the growth outlook for the South Asia Region? Also, China recently has been accused of DEBT DIPLOMACY Globally and crushing various economies worldwide forcing countries like Pakistan, Equador, Sri Lanka, Maldives etc in debt crisis thus influencing their regional politics as well. How does the World Bank look at this crisis?
Patrick Kirby: On the outlook for the South Asian region, South Asia remains the world’s fastest-growing region. Growth in the region is projected to accelerate to 7.1 per cent in 2019 from 6.9 in the previous year. Over the medium term, robust domestic demand will continue to underpin growth, which is expected to average 7.1 per cent.
Nevertheless, there are a number of risks to the outlook. For example, we say that South Asian economies have high levels of public debt in general. Fiscal slippages could further worsen already-precarious public debt positions and result in a costly rise in already-elevated interest payments.
Also, the upcoming election cycle next year elevates political uncertainty in the region. The challenging political environment could adversely affect the ongoing reform agenda and economic activity in some countries (e.g. Afghanistan, Sri Lanka).
In South Asia, non-performing assets are still high despite recent measures taken to improve the recognition of these assets. Especially, public sector banks in India, which represent roughly 70 per cent of the banking sector assets, still report low profitability and high non-performing loans. Credit expansion could be limited in some major South Asia economies unless further steps are taken to deal with financial and corporate balance sheets.
On the external front, the region has relatively low exposure to international trade, which limits the benefits from trade over the long term. However, the low exposure also suggests that it could be more insulated from the effects of rising trade protectionism than other regions. Moreover, the region may even benefit from trade diversion amid the recent dispute between some major economies.
WION: What can be the possible reasons for Slowdown in Chinese Economy?
Patrick Kirby: On the issue of China, growth is estimated to have slowed to a still robust 6.5 per cent in 2018, supported by resilient consumption. Growth is projected to decelerate to 6.2 per cent in 2019, slightly below previous projections as a result of weaker exports, and to further moderate to 6 per cent by the end of the forecast horizon, broadly in line with its potential pace. Domestic demand is projected to remain robust aided by policies to boost consumption. Supportive fiscal and monetary policies undertaken or announced so far are expected to largely offset the negative impact of higher tariffs; however, additional stimulus may have the undesirable effect of slowing the deleveraging and de-risking process
WION: How does the World Bank look at the Global Debt Crisis especially in low-income countries?
Patrick Kirby: On the issue of debt, debt vulnerabilities in low-income countries have increased substantially in recent years. Since 2013, median government debt has risen by 20 percentage points of GDP and has shifted toward non-concessional and private financing. As a result, in most low-income countries, interest payments are absorbing an increasing proportion of government revenues. The majority of low-income countries would be hard hit by a sudden weakening in a trade or global financial conditions are given their high levels of external debt, lack of fiscal space, low foreign currency reserves, and undiversified exports. Efforts to reduce debt-related vulnerabilities are a policy priority for many low-income countries, and a key focus needs to be improving debt management and developing domestic financial systems.
WION: How important is coordination between Central Banks and Policy Makers (Government) in a country's economy? For eg RBI and GOI having different views on Farm Loan Waivers.
Patrick Kirby: On the issue of central banks in general, policymakers in emerging market and developing economies need to uphold a credible commitment to medium-term price stability—one that is supported by macroeconomic frameworks that set attainable inflation targets where appropriate, as well as maintain strong institutional independence and transparency. This will be especially critical if the ongoing period of low and stable global inflation comes to an end, perhaps driven by a slowdown or rollback of the structural factors that have held inflation at bay in recent decades—in particular, trade and financial integration—or erosion of central bank independence.
WION: How should we see Artificial Intelligence replacing humans as a workforce? Can it be seen as a potential threat or a power booster?
Patrick Kirby: On the issue of the future of work, this issue is discussed extensively in the World Bank’sWorld Development Report 2019, The Changing Nature of Work.
Patrick Kirby, Senior Economist- World Bank Prospects Group says High Level of public debt in general and fiscal slippages could worsen the situation in the region.